JT. CIT (OSD) , CC-7(2) , MUMBAI vs. M/S. ANDHRA EXPRESSWAY LTD, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, MUMBAI BEFORE SHRI G. S. PANNU, PRESIDENT & SHRI AMIT SHUKLA, JM आयकरअपीलसं./ I.T.A. No. 1588/Mum/2021 (ननधधारणवर्ा / Assessment Year: 2014-15) & आयकरअपीलसं./ I.T.A. No. 1589/Mum/2021 (ननधधारणवर्ा / Assessment Year: 2013-14) JCIT (OSD), CC-7(2), M/s Andhra Expressway Ltd. R. No. 655, Aayakar बनाम/ Ground Floor, Gammon Bhavan, M. K. Road, House, Veer Savarkar Vs. Mumbai-400020 Marg, Prabhadevi, Mumbai-400 025 स्थधयीलेखधसं./जीआइआरसं./ PAN No. AADCA3577E (अपीलधथी/Appellant) (प्रत्यथी / Respondent) : अपीलधथीकीओरसे/ Appellant by : Smt. Shailja Rai, Ld. DR प्रत्यथीकीओरसे/Respondent by Shri Rakesh Joshi, Ld. AR : सुनवधईकीतधरीख/ : 01.06.2022 Date of Hearing घोर्णधकीतधरीख / : 24.06.2022 Date of Pronouncement आदेश / O R D E R Per Amit Shukla, Judicial Member: The aforesaid appeals have been filed by the revenue against the separate impugned order of even date 29.06.2021, passed by

2 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. Ld. CIT(A)-49, Mumbai for the quantum appeal of assessment passed u/s 143(3) for AY 2013-14 and 2014-15.

3 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. 2. On the facts and the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the claim of deduction u/s. 80IA of the Act to the assessee-company, without appreciating the fact that Explanation added to Section 80IA by Finance Act, 2007 clearly states that in a case where a person makes the investment, and himself executes the development work, only then he will be eligible for tax benefit u/s. 80IA of the Act. 3. On the facts and the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the entire claim of deduction u/s. 80IA of the Act to the assessee-company, without appreciating the fact that large part of the scope of work pertained to strengthening of the existing road as is also clear from the Right of Way information charts and Schedule D 'Project Facilities' of Concession Agreement, whereas the deduction u/s SOLA is available only for development of the new infrastructure facility. 4. On the facts and the circumstances of the case and in law, the Ld. CIT(A) was correct in allowing the appeal of the assessee by ignoring the fact that the assessee company was a mere paper company and not a developer. 5. 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 arrangements for development of roads/highways etc., the assessee undertaking the project of improvement, operation &

4 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. 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. 6. 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 )(ii) of the Act. 7. 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 arises only in F.Y. 2016 17 and not in the current year and therefore cannot be allowed to the assesses as per the provisions of section 37(1) of the Income Tax Act. 8. 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

5 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. electrical (P) Ltd vs DCIT (2017) is not applicable to the case of the assessee. 9. On the facts and circumstances of the case and in the law, the Ld. CIT(A) erred in deleting the disallowance made u/s 14A in 115JB income without appreciating the fact that IT AT, F-Bench, Mumbai, in the case of DCIT 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 115JB(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. 4. In AY 2013-14, the revenue has taken the following grounds:-

6 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. 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)(ii) 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 facts that the liability for the periodic maintenance arises only in FY 2016-17 and not in the current year 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 Electricals (P) Ltd. vs DCIT (201 7) is not applicable to the case of the assessee. 5. On the facts and circumstances of the case and in the law, the Ld. CIT(A) 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 DCIT Vs. Viraj Profiles Ltd. (2016) 156 ITD

7 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. 72 (Mumbai-Trib) vide its order dated 21.10.2015 has held that in terms of clause (f) to Explanation 1 to section 115JB(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. 5. Thus, the ground of appeal raised in AY 2013-14 are similar to ground no. 5 to 8 raised in AY 2014-15.

8 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. kilometer 300 (47 kilometers) between Vijayawada and Vishakhapatnam to a 4-lane dual carriage way with Private Sector participation on Built, Operate and Transfer (BOT) basis. Accordingly, NHAI floated a bid of the aforesaid 4-lane project on BOT basis under Annuity Scheme. As per the bid requirement, two entities viz. Gammon India Ltd. (GIL) a Punj Lloyd Ltd., came forward to compete the bid by forming a consortium and being successful in the bid, both these entities incorporated the assessee company as a special purpose vehicle to implement the project. Accordingly, NHAI entered into a concession agreement with the assessee on 30th October 2001, for implementing the 4-lane project. As per the terms of concession agreement, the assessee was to build the project and operate and maintain it for a period of 17 years and six months ending on 21st November 2019. As per the terms of the agreement, the assessee was to receive annuity income from NHAI. After entering into the aforesaid concession agreement, the assessee entered into an Engineering Procurement Contract (EPC) with Punj Lloyd Ltd. on 1st March 2002, to construct the Highway for and on behalf of the assessee in accordance with the terms of the concession agreement. Similarly, the assessee entered into a

9 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. separate operation and maintenance (O&M) contract with GIL on 4th October 2005, to undertake the operation and maintenance of the project for and on behalf of the assessee. For the assessment year 2005-06, the assessee filed its return of income on 31st October 2005, declaring nil income after claiming deduction under section 80IA of the Act in respect of the BOT road project. Similarly, for the assessment years 2006-07 and 2007-08 also, the assessee filed its return of income in regular course claiming deduction under section 80IA of the Act in respect of BOT project. Assessments for these assessment years were originally completed under section 143(3) of the Act rejecting assessee's claim of deduction under section 80IA of the Act on the ground that strengthening and widening of an existing road cannot be considered as a new infrastructure facility under section 80IA(4) of the Act.

10 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. depreciation of Rs. 33,74,23,292/- u/s 32(1)(ii) of the Act. However, the Ld. AO did not accept the contention 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 Road assets which it constructed under the BOT agreement and that the case of the assessee was duly covered by the CBDT circular No, 09/2014 dated 23.04.2014. Further, the Ld. AO also added an amount of Rs 10,59,00,000/- 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. The assessee had also claimed deduction u/s 80IA, which was also denied by the Ld. AO. Finally, the assessment order u/s 143(3) was passed on 26.12.2016 assessing the total income under normal provisions at Rs. 14,50,08,570/- and Book profit u/s 115JB at Rs. 17,08,57,711/-.

11 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. 6.2.1. I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. During the year under consideration, the appellant has claimed deduction under section 80-IA of the Act on the basis that the business activity undertaken by the appellant falls within the definition of 'Infrastructure Facility1 as provided in Explanation (a) to Section 80IA(4)(1) of the Act. This claim is being made since AY 2005-06 onwards. As such, this is not the first year of claim of deduction, neither it is a new claim made by the assessee during the year under consideration. The appellant had claimed deduction by placing reliance on the CBDT's Circular No.4/2010 dated May 18, 2010 wherein the CBDT had clarified that the widening of existing roads by constructing additional lanes as a part of a highway project by an undertaking would be regarded as a 'new infrastructure facility' for the purpose of section 80-IA of the Act. In the project under consideration, the appellant is engaged in widening of two-lane road to a four lane road which, as per the claim of the assessee, brings into existence a 'new infrastructure facility' resulting into a new four lane highway which was not in existence before. It has entered into an agreement with NHAI, a statutory body for developing, operating and maintaining the said infrastructure facility. 6.2.2. It was submitted that by the assessee that the income from this project has already been held as eligible for deduction by the Hon'ble ITAT vide an order dated 16.10.2020 for AY's 2005-06 to 2011-12, wherein it was held that the project of development and

12 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. widening road undertaken by the assessee qualifies the definition of a 'new infrastructure facility' and is eligible for the purpose of claiming deduction u/s.80IA(4)(i) of the Act. 6.2.3. The assessee also placed reliance on the case of Rohan & Rajdeep Infrastructure v. Assistant Commissioner of Income- tax (2014) 61 SOT 9 (Pune - Tribunal), wherein the Hon'ble ITAT has held that assessee was entitled to deduction under section 80- IA of the Act as the project work involved strengthening and improving of existing roads which brought into existence new infrastructure facility. Reliance was also placed on the decision of Hon'ble Hyderabad ITAT in the case of Somdutt Builders NCC vs ACIT (148/Hyd/2009), wherein deduction was allowed 80IA(4)(1) of the Act. 6.2.4. It is found that this issue is squarely covered by the decision of the Hon'ble Mumbai ITAT in it's own case from AY's 2005-06 to 2011-12. In the order dated 16.10.2020, the Hon'ble ITAT placed reliance in the case of a sister concern naming M/S Rajahmundry Expressway Pvt. ltd. for AY 2008-09 in ITA no.6487/Mum./2017, wherein the Hon'ble ITAT has considered the issue at length and held as under: "16. Having held so, we could have restrained ourselves from deciding the issue on merits. However, since the issue arises in other assessment years as well where the assessments have abated, we consider it appropriate to deal with the merits of the issue at this juncture. Undisputedly, the Assessing Officer

13 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. adopting the very same reasoning on the basis of which assessee’s claim of deduction under section 80IA of the Act was disallowed in the original assessment proceedings for the assessment years 2007-08 and 2008-09 has disallowed assessee’s claim of deduction in the impugned assessment year as well. As discussed earlier, the reason for such disallowance in all these years is, the EOT road not being a new infrastructure facility is ineligible for deduction under section 80IA of the Act. However, knowing the fallacy of the aforesaid reasoning of the Assessing Officer, which has been reversed by the appellate authorities in proceedings arising out of original assessment order, learned Commissioner (Appeals) has made an attempt to sustain the disallowance by completely deviating from the reasoning of the Assessing Officer and in the process has provided his own reasoning. Referring to the concession agreement as well as the EPC and O & M contracts learned Commissioner (Appeals) has tried to make out a case that the assessee is a mere paper company and after getting the work from NHAI has awarded the work to GIL on back-to-back basis without carrying out any work itself. However, facts on record reveal that it is the assessee with whom NHAI has entered into the concession agreement for developing, operating and maintaining the toll Road. A perusal of the concession agreement reveals that the entire responsibility, risk and reward arising out of the BOT Project were with the assessee. Though, assessee was entrusted the job of developing, operating and maintaining the project by the NHAI, however, the

14 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. concession agreement also provides that the assessee can get the development work done through a contractor by entering into EPC contract. Further, the concession agreement also provided that the assessee can enter into a separate contract for operation and maintenance of the BOT Project. Thus, it is evident, the EPC and O & M contracts entered into by the assessee with GIL are as per the terms of the concession agreement and also with the approval of NHAI. It is also a fact on record that the assessee has financed the entire project by availing loan from financial institutions. Further, as per the concession agreement assessee at its own cost is required to insure the project during the period of implementation. The work of GIL is limited to carrying out the development as well as operation and maintenance of the infrastructure project as per the price fixed under the contracts. Thus, the status of GIL is that of a contractor. Whereas, the assessee as per the terms of the concession agreement is the developer of the infrastructure facility. It is relevant to observe, the concession agreement was executed on 30th October 2001. Whereas, the EPC contract was entered into on 13th February 2002. Thus, both these contracts were much prior to assessment year 2006-07, wherein, for the first time assessee claimed deduction under section 80IA of the Act. It is also a fact on record that in the course of assessment proceeding in assessment year 2006-07, the Assessing Officer after examining assessee"s claim allowed the deduction under section 80IA of the Act. Though, in assessment years 2007-08 and 2008- 09 while completing the assessments under section 143(3) of the

15 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. Act, the Assessing Officer disallowed the deduction under section 80IA of the Act on the ground that it is not a new infrastructure facility, however, both the appellate authorities i.e., learned Commissioner (Appeals) and the Tribunal have allowed assessee"s claim. The facts and materials on the basis of which assessee"s claim of deduction under section 80IA of the Act was allowed by the appellate authorities have not changed as the concession agreement and the EPC and O & M contracts have remained same. In fact, in the impugned assessment order, the Assessing Officer has examined the EPC contract, however, he has not raised any doubt regarding assessee"s status as a developer. Learned Commissioner (Appeals) on the basis of the very same documents has held the assessee as a paper company and not a developer. This is merely for the fact that the assessee has entered into the EPC contract with GIL. In our view, a reading of section 80IA of the Act makes it clear that as per the qualifying conditions, the company eligible for claiming deduction firstly, must have been created by a consortium, secondly, it must have entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for developing or operating and maintaining or developing, operating and maintaining a new infrastructure facility and thirdly, it has started or starts operating and maintaining the infrastructure facility on/or after first day of April 1995. There cannot be any doubt that the assessee has fulfilled the first and third conditions. If, at all, there is some doubt regarding the second condition as to

16 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. whether the assessee can be regarded as a developer or engaged in operating and maintaining the infrastructure facility. A reading of section 80IA as a whole as well as the concession agreement would make it clear that it is the assessee who has been entrusted the work of developing, maintaining, operating the infrastructure facility. The project has been financed entirely by the assessee. GIL has executed the work merely as a contractor. 17. Though, learned Commissioner (Appeals) has stated that for the same infrastructure facility both the assessee and the GIL are claiming deduction, however, the aforesaid finding is factually incorrect. In fact, from the material placed on record, it is evident, GIL has withdrew its claim of deduction under section 80IA of the Act after the amendment brought to provision prohibited allowance of deduction to a contractor. Thus, as per the facts on record, it is the assessee who is only claiming deduction under section 80IA of the Act. Further, the allegation of learned Commissioner (Appeals) that the assessee is a mere paper company is unacceptable considering the fact that an agency of the Central Government has entered into a contract with the assessee. Even, the annuity income received by the assessee from NHAI has been assessed at the hands of the assessee. Expenditure claimed including finance cost, depreciation, etc. have also been allowed. Thus, it is very much clear that the assessee is a genuine company doing business and cannot be regarded as a paper entity. The most crucial factor which needs to be kept in mind is, assessee"s claim of deduction under section 80IA of the Act in respect of the same

17 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. infrastructure facility was allowed by learned Commissioner (Appeals) in the assessment years 2007-08 and 2008-09 and the Tribunal also approved it. It is worth mentioning, while deciding identical issue in assessment year 2012-13, which is after the date of search and seizure operation, learned Commissioner (Appeals) following the decision of the Tribunal has allowed assessee"s claim of deduction under section 80IA of the Act. Thus, it is very much clear that the appellate authorities on verifying identical facts and materials have never considered the assessee as a paper company or it is not a developer of the infrastructure facility, hence, allowed assessee"s claim of deduction. In our view, when the issue relating to assessee"s claim of deduction stands concluded by the Tribunal, learned Commissioner (Appeals) cannot take a different view to disallow assessee"s claim of deduction by treating it as a paper company, that too, without any material basis. For coming to such conclusion, we are supported by the decision of the Hon'ble Jurisdictional High Court in Paul Bros, (supra). 18. The observation of the learned Commissioner (Appeals) that the assessee is a mere paper company and by entering into EPC contract, it has inflated its profit by deflating the value of the contract cannot also be accepted as it is merely on the basis of a presumption. As discussed earlier, vide notification no.266, dated 19th September 2002, the Central Government has granted approval under section 10(23G) of the Act recognizing the

18 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. assessee as an undertaking wholly engaged in developing, operating and maintaining infrastructure facility. Meaning thereby, the Central Government recognizes the assessee as an eligible undertaking under section 80IA(4) of the Act for developing, operating and maintaining the BOT Toll Road. Therefore, only because the work has been executed through a contractor, the assessee cannot be treated as a paper company. 19. As regards the observation of learned Commissioner (Appeals) that, if at all, GIL would be eligible for deduction under section 80IA, in our view, such finding is totally misplaced. A reading of section 80IA(4)(i) of the Act would make it clear that GIL does not fulfill any of the conditions mentioned therein. Moreover, by insertion of explanation below section 80IA(13) of the Act, it has been made clear that a contractor is not eligible to claim deduction under section 80IA of the Act. The financial statements of both the assessee as well as GIL, concession agreement, EPC and O & M contracts clearly demonstrate that GIL is executing the work in the status of a contractor. For this reason alone, GIL withdrew its claim of deduction under section 80IA of the Act which is evident from the order passed by the Tribunal in ITA no.5149& 7430/Mum./2007, dated 27th April 2011. The provision of section 80IA(4) of the Act certainly does not give an impression that the assessee has to do the developing, operating and maintaining the infrastructure facility all by itself without engaging any contractor. This, in our view, cannot be the meaning of section 80IA(4) of the

19 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. Act. This is why, while dealing with the issue earlier, though, the fact of EPC and O & M contracts were very much in the knowledge of the Assessing Officer as well as the appellate authorities, they never questioned assessee"s status as the developer of the infrastructure facility and the disallowance of deduction under section 80IA of the Act was made only on the reasoning that the infrastructure facility is not a new one. Therefore, when the status of the assessee has been accepted as a developer, even by the Assessing Officer in the impugned assessment order, learned Commissioner (Appeals) cannot change the status purely on the basis of conjecture and surmises without any contrary material available on record. In fact, learned Commissioner (Appeals) has not referred to even a single piece of material which can even remotely suggest that the assessee is a mere paper company and does not qualify the conditions of section 80IA(4) of the Act. There is no doubt that the BOT Toll Road built by the assessee is a infrastructure facility as defined under section 80IA(4) of the Act. Therefore, an entity which developed such a facility is eligible to claim deduction, provided, he fulfills the conditions of section 80IA(4)(i) of the Act. In the fact of the present case, if neither the assessee nor GIL are held as ineligible then no one else could get the benefit of section 80IA of the Act and the very object for which the provision has been brought would fail. Unless the entity coming forward to make the investment in developing infrastructure facility is granted the statutory deduction no one will come forward to make huge investment for development of

20 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. infrastructure facility which ultimately leads to development of country"s economic condition. Therefore, keeping in view all the relevant facts including the decision of the Tribunal in assessee"s own case as referred to elsewhere in the order, we hold that the assessee is eligible to claim deduction under section 80IA of the Act. Therefore, the Assessing Officer is directed to verify the correctness of assessee"s computation of deduction under section 80IA and allow the same. Further, to ensure that deduction for the same infrastructure facility is not allowed to both the assessee and Gil, the Assessing Officer is directed to verify the relevant facts and thereafter compute deduction under section 80IA of the Act. These grounds are allowed." 6.2.5. Material facts as to this issue for the year under reference remains exactly the same as for the previous years. Hence, respectfully following the decision of Hon'ble ITAT in the case of the assessee for the aforesaid assessment years, the AO is directed to compute the deduction and allow the same for the year under consideration in terms of the above directions of the Hon'ble ITAT. The ground is accordingly allowed subject to verification of facts as above. 10. Thus, following the aforesaid judgment of the Tribunal in assessee’s own in earlier year which has been followed by Ld. CIT(A), the claim of deduction u/s 80IA is allowed. Consequently, the Ground No. 1 to 4 raised by revenue are dismissed.

21 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. 11. In so far as Ground no. 5 & 6 relating to the depreciation claimed on the right to collect annuity, Ld. CIT(A) has decided this issue which reads as under:-

7.2.1. I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The assessee company is engaged in the business of developing, operating and maintaining Dharmavaram Tuni Toll Road Annuity Project, a 47 km stretch of road in Andhra Pradesh on NH-5 on a build, operate and transfer basis under a contractual arrangement with 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, hence, the assessee company cannot be treated as the "Owner" of the 'property' and cannot 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 road on Build Operate and Transfer (BOT) basis. The appellant submitted that as per the concessionaire agreement it had the right to collect toll for a fixed period of time in order to recoup the cost of the project. Thus, the right to collect toll 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 disputed that on the expiry of the time period of the agreement, the said right of the Appellant will cease to have effect which means it slowly will depreciate to the nil

22 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. value. As per the provisions of the Income Tax Act, especially under section 32(1)(ii), the Appellant is entitled to claim of depreciation on such type of rights. 7.2.2. The CBDT has issued Circular No. 09/2014 dated 23.04.2014, in which it has dealt with the issue of treatment of expenditure incurred for development of roads & highways in Build- Own-Transfer (BOT) agreements. In aforesaid Circular No. 09/2014, the CBDT has expressed the view that as the assessee does not hold any rights in the project except recovery of toll fee to recoup the expenditure incurred, the assessee cannot be treated as the "owner" of the property and cannot be allowed depreciation u/s 32(1 )(ii) of the Act. However, the CBDT has also held, following the law laid down in Madras Industrial Investment Corp 225 ITR 802 (SC), the entire cost of construction and development of the infrastructure facility has to be amortized evenly over the period of the concessionaire agreement and allowed as business expenditure u/s 37(1) of the Act after excluding the time taken for creation of such facility. 7.2.3. It is found that the CBDT's view with regard to the assessee not being the "owner" runs counter to the law laid down in Noida Toll Bridge 213 Taxman 333 and several other judicial pronouncements relied upon by the assessee. In the case of DCIT vs Swarna Tollway,[2014] 43 taxmann.com 252 (Hyderabad - Trib.), the ITAT has conducted a thorough analysis of the entire law on the subject and concluded that the assessee has to be treated as

23 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. the "owner" even though it has limited rights on the structure. In this case, the assessee, a SPV, was awarded a contract by the NHAI for widening, rehabilitation and maintenance of an existing two lane highway into a four lane one on the Tada-Nellore section of NH-5 on BOT basis. The entire cost of construction of Rs. 714 crore was borne by the assessee. The construction was completed during the FY 2004-05 after which the highway was opened to traffic for use and the assessee started claiming depreciation from AY 2005-06 onwards. The AO rejected the claim on the ground that the assessee had no ownership, leasehold or tenancy rights for the asset in question, i.e., the roads. On appeal, the CIT(A) reversed the AO. On appeal by the department to the Tribunal dismissing the appeal. While considering the matter, the Tribunal relied on several judgements of the Supreme Court including Mysore Minerals 239 ITR 775 (SC) where the concept of "owner" has been considered in great detail, has observed that: "Though the NHAI remains legal owner of the site with full powers to hold, dispose of and deal with the site consistent with the provisions of the agreement, the assessee had been granted not merely possess/on but also right to enjoyment of the site and NHAI was obliged to defend this right and the assessee has the power to exclude others. The very concept of depreciation suggests that the tax benefit on account of depreciation belongs to one who has invested in the capital asset, is utilizing the capital asset and thereby loosing gradually investment cost by wear and tear and

24 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. would need to replace the same by having lost its value fully over a period of time. The term "owned" as occurring in s. 32 (1) of the Act must be assigned a wider meaning. Anyone in possession of property in his own title exercising such dominion over the property as would enable others being excluded there from and having the right to use and occupy the property and/or to enjoy its usufruct in his own right would be the owner of the buildings, though a formal deed of title may not have been executed and registered." (Mysore Minerals 239 ITR 775 (SC), Noida Toll Bridge 213 Taxman 333 etc referred) 7.2.4. The issue was, thereafter, considered by the Hon'ble Bombay High Court in the case of CIT vs North Gujarat Expressway (2017) 82 taxman.com 224(Bom) and the Hon'ble High Court has clarified that an entity which constructs a road on build, operate and transfer (BOT) basis on government land is not the "owner" of the road and cannot claim depreciation on it. However, the fact that the asset could be considered as an intangible asset and hence, allowable for depreciation, was not there for consideration before the Hon'ble High Court and the same remained open even after this decision of Hon'ble Mumbai High Court. 7.2.5. Subsequently, this very issue was examined in detail by the Special Bench of Hyderabad Tribunal in the case of ACIT v. Progressive Constructions Ltd [2018] 92 taxmann.com 104 (Hyderabad - Trib.), wherein the Hon'ble Special bench of the

25 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. 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 acquired by the assessee for operating the project facility and collecting toll charges was an intangible asset created by the 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. The findings of the Hon'ble Tribunal in the aforesaid case are as below: “11. Undisputedly, for executing the project, assessee has incurred expenses of Rs. 214 crore. It is also not disputed that as per the terms of the C.A., the Government of India is not obliged/required to reimburse the cost incurred by the assessee to execute/implement the project facilities. The only right/benefit allowed to the assessee by the Government of India is to operate the project/project facilities during the concession period of 11 years 7 months and to collect toll charges from vehicles/persons

26 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. using the project/project facilities. Thus, as could be seen, the only manner in which the assessee can recoup the cost incurred by it in implementing the project/project facility is to operate the road during the concession period and collect the toll charges from user of the project facility by third parties. Admittedly, the assessee has taken up the project as a business venture with a profit motive and certainly not as a work of charity. Further, by investing huge some of Rs. 214 crore, the assessee has obtained a valuable business/commercial right to operate the project facility and collect toll charges. Therefore, in our considered opinion, right acquired by the assessee for operating the project facility and collecting toll charges is an intangible asset created by the assessee by incurring the expenses of Rs. 214 crore. The contention of the learned Senior Standing Counsel that expenditure of Rs. 214 crore has brought into existence a tangible asset in the form of roads and bridges of which the assessee is not the owner but it is the Government of India is nobody's case. Further, the learned Senior Standing Counsel's apprehension that it will lead to a situation where both Government of India and the concessionaire will claim depreciation on the asset created with the very same expenditure, in our view, is not borne out from facts on record. At the cost of repetition we must observe, as per the terms of agreement the expenses incurred by the assessee towards construction of the roads, bridges, etc., were not going to be reimbursed by the Government of India. This fact was known to both the parties before the execution of the agreement as the

27 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. tender itself has made it clear that the project is to be executed with private sector participation on BOT basis. Thus, from the very inception of the project, assessee was aware of the fact, it has to recoup the cost incurred in implementing the project along with the profit from operating the road and collecting toll charges during the concession period. Therefore, assessee has capitalized the cost incurred on the BOT project on which it has claimed depreciation. Thus, in our view, the expenditure incurred by the assessee of Rs. 214 crore for creating the project or project facilities has created an intangible asset in the form of right to operate the project facility and collect toll charges. Further, it is the contention of the learned Senior Standing Counsel that if at all any right is created under the C.A. for collecting toll, such right accrued to the assessee on the date of execution of agreement i.e., 22nd December 2005, therefore, the expenditure incurred by such date should be the value of intangible asset which can alone be considered for depreciation under section 32(1)(ii) of the Act. We are afraid, we cannot accept the above argument of the learned Senior Standing Counsel. When the C.A. confers a right on the assessee to operate the project facility and collect toll charges over the concession period of 11 years and 7 months, the assessee can start operating and collecting toll charges only when the project facility is ready for use. Therefore, until the project is completed and ready for use by vehicles or persons assessee cannot collect toll charges for user of the project facilities. Thus, the right to operate the project facility and collect toll charges is integrally connected to the completion of

28 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. the project facility which cannot be done unless the assessee invests its fund for completing the project. Therefore, keeping in view the aforesaid fact, it cannot be said that the right to collect toll has accrued to the assesses on the date of execution of the agreement. If we accept the aforesaid argument of the learned Senior Standing Counsel, in other words, it would mean that without even executing and completing the project facility, assessee would be collecting toll charges. Therefore, the contention of the learned Senior Standing Counsel that the expenditure incurred by the assessee till execution of the agreement can only be considered as an intangible asset, in our view, is illogical, hence, cannot be accepted. Thus, having held that the expenditure of Rs. 214 crore incurred by the assessee has resulted in creation of an intangible asset of enduring nature for the assessee, it is necessary now to examine whether such intangible asset comes within the scope and ambit of section 32(1 )(ii) of the Act. For this purpose, it is necessary to look into the said provision which is reproduced hereunder for the sake of convenience. Depreciation. 32(1 )(ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and

29 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. used for the purposes of the business or profession, the following deductions shall be allowed— 12.Explanation 3 to section 32(1) defines intangible asset as under:— Explanation 3.—For the purposes of this sub-section, the expression "assets" shall mean— (a) tangible assets, being buildings, machinery plant or furniture; (b) intangible assets, being know-how, patents copyrights, trade marks, licences franchises or any other business oi commercial rights of similar nature. 13. A plain reading of the aforesaid provisions would indicate that certain kind of assets being knowhow, patents, copyrights, trademarks, license, franchise, or any other businesses or commercial rights of similar nature are to be treated as intangible asset and would be eligible for depreciation at the specified rate. It is the claim of the assessee that the right acquired under C.A. to operate the project facility and collect toll charges is in the nature of license. However, the learned Senior Standing Counsel has strongly countered the aforesaid claim of the assessee by referring to the definition of license as provided under the Indian Easements Act, 1882. For better appreciation, we intend to reproduce herein below the definition of "license" as provided under section 52 of the Indian Easements Act, 1882:-

30 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. "License" defined:- Where on person 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 license." 14. It has been the contention of the learned Senior Standing Counsel that as the term "license" has not been defined under the Income Tax Act, 1961, the definition of "license" under the Indian Easements Act, 1882, has to be looked into. Accepting the aforesaid contention of the learned Senior Standing Counsel, let us examine the definition of "license" extracted herein above. A plain reading of section 52 of the Act makes it clear, a right granted to a person to do or continue to do something in the immovable property of the grantor, which, in the absence of such right would be unlawful and such right does not amount to an easement or interest in the property, then such right is called a license. If we examine the facts of the present case, vis-a-vis, the definition of license under the Indian Easements Act, 1882, it would be clear that immovable property on which the project/project facility is executed/implemented is owned by the Government of India and it has full power to hold, dispose off and deal with the immovable property. By virtue of the C.A., assessee has only been granted a limited right to execute the project and operate the project facility during the concession period, on expiry of which the project/project facility will revert back to the Government of India.

31 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. What the Government of India has granted to the assessee is the right to use the project site during the concession period and in the absence of such right, it would have been unlawful on the part of the concessionaire to do or continue to do anything on such property. However, the right granted to the concessionaire has not created any right, title or interest over the property. The right granted by the Government of India to the assessee under the C.A. has a license permitting the assessee to do certain acts and deeds which otherwise would have been unlawful or not possible to do in the absence of the C.A. Thus, in our view, the right granted to the assessee under the C.A. to operate the project/project facility and collect toll charges is a license or akin to license, hence, being an intangible asset is eligible for depreciation under section 32(1 )(ii) of the Act. 15. Even assuming that the right granted under the C.A. is not a license or akin to license, it requires examination whether it can still be considered as an intangible asset as described under section 32(1)(ii) of the Act. In this context, it has been the contention of the learned Senior Standing Counsel that the intangible asset mentioned under section 32(1 )(ii) of the Act are specifically identified assets, except, the assets termed as "any other business or commercial rights of similar nature". He had submitted, applying the principle of ejusdem generis the rights referred to in the expression "any other business or commercial rights of similar nature", should be similar to one or more of the

32 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. specifically identified assets preceding such expression. The aforesaid contention of the learned Departmental Representative is unacceptable for the reasons enumerated hereinafter. 16. We have already held earlier in the order that by incurring the expenditure of Rs. 214 crore assessee has acquired the right to operate the project and collect toll charges. Therefore, such right acquired by the assessee is a valuable business or commercial right because through such means, the assessee is going to recoup not only the cost incurred in executing the project but also with some amount of profit. Therefore, there cannot be any dispute that the right to operate the project facility and collect toll charges therefrom in lieu of the expenditure incurred in executing the project is an intangible asset created for the enduring benefit of the assessee. Now, it has to be seen whether such intangible asset comes within the expression "any other business or commercial rights of similar nature". As could be seen from the definition of intangible asset, specifically identified items like knowhow, patents, copyrights, trademarks, licenses, franchises are not of the same category, but, distinct from each other. However, one thing common amongst these assets is, they all are part of the tool of the trade and facilitate smooth carrying on of business. Therefore, any other intangible asset which may not be identifiable with the specified items, but, is of similar nature would come within the expression "any other business or commercial rights of similar nature". The Hon'ble Supreme Court in Smifs Securities (supra) after interpreting the definition of

33 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. intangible asset as provided in Explanation 3 to section 32(1), while opining that principle of ejusdem generis would strictly apply in interpreting the definition of intangible asset as provided by Explanation 3(b) of section 32, at the same time, held that even applying the said principle 'goodwill' would fall under the expression "any other business or commercial rights of similar nature". Thus, as could be seen, even though, 'goodwill' is not one of the specifically identifiable assets preceding the expressing "any other business or commercial rights of similar nature", however, the Hon'ble Supreme Court held that 'goodwill' will come within the expression "any other business or commercial rights of similar nature". Therefore, the contention of the learned Senior Standing Counsel that to come within the expression "any other business or commercial rights of similar nature" the intangible asset should be akin to any one of the specifically identifiable assets is not a correct interpretation of the statutory provisions. Had it been the case, then 'goodwill' would not have been treated as an intangible asset. The Hon'ble Delhi High Court in case of Areva T and D India Ltd. (supra), while interpreting the aforesaid expression by applying the principles of ejusdem generis observed, the right as finds place in the expression "business or commercial rights of similar nature" need not answer the description of knowhow, patents, trademarks, license or franchises, but must be of similar nature as the specified asset. The Court observed, looking at the meaning of categories of specified intangible assets referred to in section 32(1)(ii) of the Act

34 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. preceding the term "business or commercial right of similar nature", it could be seen that the said intangible assets are not of the same line and are clearly distinct from one another. The Court observed, the use of words "business or commercial rights of similar nature", after the specified intangible assets clearly demonstrates that the legislature did not intend to provide for depreciation only in respect of specified intangible assets but also to other categories of intangible assets which were neither visible nor possible to exhaustively enumerate. The Hon'ble Court, therefore observed, in the circumstances the nature of business or commercial right cannot be restricted only to knowhow, patents, trademarks, copyrights, licence or franchise. The Court observed, any intangible assets which are invaluable and result in smoothly carrying on the business as part of the tool of the trade of the assessee would come within the expression "any other business or commercial right of similar nature". 17. In the case of Techno Shares and Stocks Ltd. (supra), the Hon'ble Supreme Court while examining the assessee's claim of depreciation on BSE Membership Card, after interpreting the provisions of section 32(1)(ii), held that as the membership card allows a member to participate in a trading session on the floor of the exchange, such membership is a business or commercial right, hence, similar to license or franchise, therefore, an intangible asset. In the present case, undisputedly by virtue of C.A. the assessee has acquired the right to operate the toll road/bridge and collect toll charges in lieu of investment made by it in

35 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. implementing the project. Therefore, the right to operate the toll road/bridge and collect toll charges is a business or commercial right as envisaged under section 32(1)(ii) r/w Explanation 3(b) of the said provisions. Therefore, in our considered opinion, the assessee is eligible to claim depreciation on WDV as an intangible asset. Thus, we answer the question framed by the Special Bench as under- The expenditure incurred by the assessee for construction of road under BOT contract by the Government of India has given rise to an intangible asset as defined under Explanation 3(b) r/w section 32(1 )(ii) of the Act. Hence, assessee is eligible to claim depreciation on such asset at the specified rate." 7.2.6. Furthermore, it is found that this issue is squarely covered by the decision of Hon'ble ITAT, Mumbai in the appellants own case from AY's 2005-06 to 2011-12, wherein the Hon'ble ITAT, vide an order dated 16.10.2020, has decided the issue in favour of the assessee placing reliance on the aforesaid order of Special Bench of Hyderabad Tribunal in the case of ACIT v. Progressive Constructions Ltd [2018] 92 taxmann.com 104 (Hyderabad - Trib.). 7.2.7. Moreover, I find that my Id. predecessor CIT(A) has also considered this aspect in the case of the assessee's sister concerns, M/s. Gorakhpur Infrastructure Co. Pvt. Ltd. for AYs.2013-14 to 2015-16 and M/s. Mumbai Nasik Expressway Pvt. Ltd. for AYs

36 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. 2013-14 to 2015-16 and has allowed the claim of the assessee considering the facts of the case and relying on judicial pronouncements referred to previously. In view of the above, and respectfully following the decision of Hon'ble ITAT in appellants own case for earlier years as above, it is held that the appellant is eligible to claim depreciation on the aforesaid asset for the year under consideration as well. The disallowance made under section 32(1 )(ii) of the Act amounting to Rs. 15,00,64,6797- is, therefore, directed to be deleted. The ground of appeal No 2 is accordingly allowed. 12. Since this issue is covered by the decision of Tribunal in assessee’s own case for AY 2005-06 to 2011-12 and similar view has been taken in the case of assessee’s sister concern M/s Koshi Bridge Infrastructure Company and other decision as noted by Ld. CIT(A), therefore the depreciation as claimed on the right to collect annuity is allowed. Consequently, the ground No. 5 & 6 raised by the revenue are dismissed.

37 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. 9.2.1. I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The AO has made an addition on account of provision for periodic maintenance amounting to Rs. 9,06,09,227/- to the income of the appellant on the ground that the method adopted by the assessee for determining the provision of periodic maintenance expenses was not scientific or reasonable. During the course of the appellate proceedings, the assessee submitted that such a provision for periodic maintenance is in the nature of unascertained liability since the liability had not actually crystallized during the current year. The said provision had been determined based on a scientific method and is incurred wholly and exclusively for the purpose of business. In order to substantiate the methodology adopted, the appellant placed on record the copy of the technical expert on the basis of which the provision for the periodic maintenance charges was determined. Further, the amount of provision has been determined in the basis of a reasonable scientific method and on the basis of an historical experience. Thus, on perusal of the details submitted and the submission made it can be concluded that the provision was determined on the basis of scientific method and was reasonable. 9.2.2. Further, the appellant submitted that it follows mercantile system of accounting as otherwise referred to as accrual basis of accounting. The contractual obligation to carry out Periodic Maintenance is an integral part of the Concession granted to

38 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. the appellant and is similar to the provisions for warranty. Further, the Hon'ble Apex Court in the case of Rotork Controls India Pvt. Ltd.(314 ITR 62 (SC) wherein the Hon'ble SC has treated the provision for contingent liabilities as allowable expense only on the fulfilment of certain conditions. It mentioned that the provision for a contingent liability can be allowed as an expense only if it is ascertained according to a reasonable scientific method which uses historical experience and statistical analysis of previous years data. Since, in the case of the appellant there was a present obligation as a result of a past event along with an outflow of resources and a reliable estimate of the obligation was also possible. Further, the foreseeable loss on account of provision for maintenance expense was not a contingent liability but it was liable to be considered while determining the income of the assessee for the period under consideration. Such losses were ascertained losses on the maintenance portion of the contract though it was an estimation made in the light of the available information. Therefore, the appellant has incurred a liability, on the facts and circumstances of this case, during the relevant assessment year which was entitled to deduction under Section 37 of the 1961 Act. It is further seen that the identical issue had come up for consideration before the Hon'ble Pune Tribunal in the case of ACIT Vs. Ashoka Buildcon Ltd. [2015] 61 taxmann.com 330 wherein the Hon'ble ITAT has held that the foreseeable losses of future years could be recognized following rationale of AS-7 and

39 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. hence such provision was an allowable deduction. The findings of Hon'ble ITAT in the aforesaid case is as below: 9. We have carefully considered the rival submissions. The respondent-assessee is engaged in the execution of an infrastructure development project which was awarded by the TNRDC. The work related to improvement of work and its maintenance for a period of five years. The job has been done on a contractual basis. Factually speaking, the contract for improvement of the road and its maintenance for a period of five years is a composite contract. The AO, however, has observed that TNRDC has awarded separate contracts, i.e. one for construction of road and second for its maintenance for a specified period. The AO has observed so on the ground that TNRDC has specifically quantified the amount payable for the two components of the work separately. For this reason, the AO held that the impugned losses calculated by the assessee are only relating to the maintenance portion of the work and therefore, maintenance expenses should be allowed only to be considered in the period corresponding to the period for which maintenance is being effected. 10. In our considered opinion, though the TNRDC has quantified the contract payments separately with regard to the improvement work and the maintenance work, so however, it would be inappropriate to say that the two works were different. In fact, it was a composite work awarded by TNRDC which involved improvement of road and its maintenance thereof for a specified

40 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. period. At p. 115 of the paper book is placed a communication addressed by the assessee to TNRDC wherein the performance guarantee has been furnished which is for the composite work relating to improvement of road and its maintenance thereof. Apart therefrom, a perusal of the various terms and conditions of the contract awarded by TNRDC makes it quite clear that the obligation of the assessee was a composite one i.e. involving improvement of the road and its subsequent maintenance for the specified period. Therefore, we are unable to agree with the AO that the works of improvement and maintenance of road were separate. In fact, factually speaking, the work carried out by the assessee was a composite fixed contract work involving improvement of road and its maintenance thereof for a fixed period. 11. The AO has disallowed the impugned provision on the ground that it is liable to be allowed in the year when it is actually incurred, and because assessee had shown the total income of Rs. 41,92,05,032 from TNRDC for road construction on receipt basis. This aspect of the matter has been challenged before the CIT(A), who held that the AO was wrong in inferring that the assessee has offered income on receipt basis. The CIT(A) has recorded in para 12 (ii) of his order that assessee company is following mercantile system of accounting and is recognizing income from contracts on percentage of completion method. In our considered opinion, there is nothing to disagree with the CIT(A) on this aspect

41 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. of the matter. In fact, the financial statements of the assessee company which are placed at pp. 206 to 220 of the paper book also point out that the assessee company is maintaining its accounts on a mercantile system. In so far as the issue of allowability of future foreseeable losses is concerned, a similar situation had come up before the Mumbai Bench of the Tribunal in the case of ITD Cementation India Ltd. (supra). In the case before the Mumbai Bench, assesses was carrying on the business of infrastructure development and the work was executed on a contractual basis. The assessee therein was executing a fixed price contract and in terms ofAS-7 issued by Institute of Chartered Accountants of India (ICAI) made a provision for future foreseeable losses and claimed deduction of such a provision. The Revenue disallowed the provision made for such foreseeable losses. The Tribunal concurred with the stand of the assessee that such a provision was an allowable deduction. The relevant portion of the order of the Tribunal is reproduced as under: "14. We have considered the rival submissions and perused the orders of the lower authorities. We have also the benefit of going through the AS-7 issued by ICAI. At the very outset, it would not be out of place to consider the provisions of s. 145 of the Act. Sec. 145(2) of the Act provides that the Central Government may notify in the official gazette from time to time accounting standards to be followed by any class of assessees or in respect of any class of income. It is a fact that AS-7 has not been notified by the Central

42 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. Government. This does not mean that the assessee is precluded from following AS-7. A perusal of the provisions of s. 145 show that accounting standards which have been notified by the Central Government have to be mandatorily followed by the assessee. But this does not mean that the assessee cannot follow the other accounting standards issued by ICAI. ICAI being the highest accounting body of the country, created by an Act of Parliament, accounting standards issued by it cannot be brushed aside lightly. On the contrary, if an assessee is following the accounting standards issued by ICAI, it would give more credibility and authenticity to its account. AS-7, inter alia , provides : 'When the outcome of a construction contract cannot be estimated reliably: (a) Revenue should be recognized only to the extent of contract costs incurred of which recovery is probable, and (b) Contract costs should be recognized as an expense in the period in which they are incurred. An expected loss on the construction contract should be recognized as an expense immediately in accordance with para 35.' 15. It is not in dispute that the assessee is executing fixed price contract which means that the contractor has agreed to a fixed contract price or rate in some cases subject to cost escalation

43 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. prices. As per AS-7, the assessee is entitled to make provision for foreseeable losses. 16. A perusal of the accounting statement of the assessee for the year under consideration shows that at para 1.6 to the notes to the financial statement, the auditors have provided as under: 'Revenue recognition on contracts Contract prices are either fixed or subject to price escalation clause. Revenue from contracts is recognized on the basis of percentage completion method, and the level of completion depends on the nature and type of each contract including : Unbilled work-in-progress valued at lower of cost and net realizable value upto the stage of completion. Cost includes direct material, labour cost and appropriate overheads; and Amounts due in respect of the price and other escalation, bonus claims and/or variation in contract work approved by the customer/third parties etc. where the contract allows for such claims or variations and there is evidence that the customer/third party has accepted it. In addition, if it is expected that the contract will make a loss, the estimated loss is provided for in the books of account. Contractual liquidated damages, payable for delays in completion of contract work or for other causes, are accounted for as costs when such delays and causes are attributable to the Company or when deducted by the client.'

44 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. 17. A similar issue has been considered by the Tribunal in the case of Mazagon Dock Ltd. v. Jt. CIT (supra) wherein the Tribunal has held as under : The question that came up for consideration was as to whether the anticipated loss on the valuation of fixed price contract in view of the mandatory requirements of the AS-7, was to be allowed in the year in which the contract had been entered into or it was to be spread over a period of contract, as was done by the assessee in earlier years. As far as the change in the method of valuation of work-in-progress was concerned, it could not be disputed that in view of mandatory requirements of the AS-7, it was a bona fide change in the method of valuation of work-in-progress, particularly in view of the qualification made in this regard by statutory auditors as well as by the Comptroller & Auditor General of India. Therefore, the observation of the CIT(A) that the assessee had booked bogus loss was not correct. As far as the basis of estimation was concerned, the same was done on technical estimation basis and, therefore, merely because there were some variations in the figures furnished by the assessee at different stages, it could not be said that the estimated loss was not allowable. It was not disputed that the Department in earlier years had allowed the loss on estimated basis having regard to the expenditure actually incurred in various years. Therefore, in principle, it was not disputed that the estimated loss under the present circumstances was an allowable deduction. However, merely because the change in method of accounting was bona

45 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. fide, it could not lead to the inference that the income was also deducible property under the Act. This aspect is very evident from the first proviso to s. 145 as it stood prior to the amendment by the Finance Act, 1995w.e.f. 1st April, 1997. It could not be disputed that from the method adopted by the assesses, the assessee's income could not be deducted properly in the year in which the loss had been anticipated. As a matter of fact this aspect was not disputed by the AO also. He had swayed more by the revenue loss than by the correct principle to be applied. The matching principle of accounting was not of much significance in the present context because if the loss had been properly estimated in the year in which the contract had been entered into, then it had to be allowed in that very year and could not be spread over the period of contract, the matching principle is of relevance where income and expenditure, both are to be considered together. However, in the instant case, the effect of valuation of WIP would automatically affect the profits of subsequent years accordingly. Therefore, there was no reason for not accepting in principle the assessee's claim as being allowable. However, in view of discrepancies pointed out by the CIT(A) for correct estimation of loss, the matter was to be restored to the file of the AO to examine the correctness of amount claimed.' 18. A similar view has been taken by the Tribunal in the case of Jacobs Engineering India (P.) Ltd. v. Asstt. CIT (supra) wherein the assessee's claims of foreseeable losses were allowed irrespective of

46 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. method of accounting in terms of AS-7. In the case of Dredging International (supra), the issue before the Tribunal was whether under s. 37(1) of the Act provision for foreseeable loss made in accordance with guidelines of AS-7 and duly debited in audited accounts of company is an allowable expenditure. The Tribunal decided the case in favour of the assessee and held that 'yes' it is an allowable expenditure. The Tribunal while deciding this issue has also considered the decision of Mazagon Dock Ltd. v. Jt. CIT (supra). 19. Considering the facts of the case in the light of the accounting standards and the decisions of the Tribunal (supra), and as no distinguishing cases have been brought on records by the Revenue, reversing the findings of the learned CIT(A), we direct the AO to recompute the business profits by allowing the losses provided by the assessee in its books. The appeal filed by the assessee is allowed." 12. To the similar effect is the decision of the Mumbai Bench of the Tribunal in the case of Mazagaon Dock (supra) which has also been relied upon by the Tribunal in the case of ITD Cementation India Ltd. (supra). Therefore, in view of the aforesaid precedents in principle, it has to be inferred that where an assessee is executing an infrastructure development fixed price contract, the foreseeable losses of future years can be recognized following the rationale of AS-7 issued by ICAI. and such a provision is an allowable deduction.

47 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. 13. The other aspect to be considered is the efficacy of the provision estimated by the assessee at Rs. 1,24,85,000. In this context, the learned Representative for the assessee clarified that the estimation of the provision is based on the maintenance expense rates on roads issued by the PWD, Government of Maharashtra. A Circular of the PWD is placed at p. 253 of the paper book which contains the rates prevailing for the year 1989-90 wherein the PWD has estimated maintenance expenses of Rs. 25,600 to Rs. 38,200 per km., which is likely to be incurred on maintenance of State Highways every year. The learned Representative explained that the road contract in question is also for a State Highway and based on the rates of the PWD for 1989-90, estimate of likely expenses to be incurred by the assessee during the financial years 2003-04 to 2006-07 came to Rs. 3,00,91,193, which is higher than the amount estimated by the assessee at Rs. 2,72,57,400, as per the working placed in the paper book at p. 255. It has been pointed out that after giving credit for the amount receivable for maintenance work as per the contract, the provision required to be made as per the PWD rates came to Rs. 1,53,18,793, which is even more than the provision of Rs. 1,24,85,000 made by the assessee. In this manner, it is sought to be pointed out that the provision made by the assesses for foreseeable losses was reasonable and justified. 14. At this stage, the learned Representative has also referred pp. 242 to 243 of the paper book, wherein certain Notes to account of some of the stock exchange listed companies engaged in execution

48 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. of contracts have been placed to show that such companies were also making provisions for foreseeable losses in execution of contracts. It is sought to be pointed out on the basis of the aforesaid material that creation of an adequate provision for future losses is a generally accepted commercial policy. 15. We have considered the working of the provision made and find that the same is neither irrational nor irrelevant to the kind of business operations under consideration. In any case, we find that the AO has not disputed the working of the provision submitted by the assesses. An aspect which has been raised by the learned Departmental Representative is to the effect that in the subsequent assessment year of 2007-08 when the maintenance period was over assessee has written back an amount of Rs. 76,00,000 out of a provision of Rs. 1,24,85,000 and that such an action indicated that estimation made by the assessee is not justified. The aforesaid approach of the Revenue, in our view, is not justified. The efficacy of the provision has to be examined in the light of the circumstances prevailing at the time when the estimate was made. In any estimation, certain degree of guesswork is invariably present, but the same would not make it unreasonable, so long as the basis adopted for making the estimate is rationale and is acceptable. In the present case, the estimate made by the assessee has been benchmarked against PWD notified rates and it appears to be reasonable. The fact that in the subsequent year assessee has written back only a portion of the provision does not indicate its

49 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. unreasonableness, rather the facts indicate that assessee indeed incurred expenditure on maintenance work which is more than the receipts due to it as per the contract. Therefore, the judgement of the assessee that it was likely to incur loss on maintenance work after five years was indeed justified, as the factum of incurrence of such loss is not disputed. In sum and substance, we are in agreement with the CIT(A) that the provision for foreseeable losses debited by the assessee in the P&L a/c is not a contingent liability so as to be disallowed while computing business income for the year under consideration. As a consequence, we hereby affirm the order of the CIT(A) and Revenue fails in its appeal. 9.2.3. In this case also, I find that the Id. AO has not disputed the working of the provision submitted by the assessee. Moreover, it is found that this issue has been under consideration before Id. CIT(A) consistently in earlier Assessment Years in the case of assessee's sister concern, M/s. Mumbai Nasik Expressway Pvt. Ltd. and was granted relief by my Id. predecessor CIT(A) for the years AY 2013-14 to 2015-16. In A.Y. 2015-16, vide an order dated 05.11.2019 in Appeal No. CIT (A)-49/IT-110/2017-18, my Id. Predecessor had adjudicated the issue with following findings: "9.2 I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The AO has made an addition on account provision for periodic maintenance amounting to Rs. 19,90,59,0727- to the income of the appellant on the ground that the method adopted by the assessee

50 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. for determining the provision of periodic maintenance expenses was not scientific or reasonable. During the course of the appellate proceedings, the assessee submitted that such a provision for periodic maintenance is in the nature of unascertained liability since the liability had not actually crystallized during the current year. The said provision had been determined based on a scientific method and is incurred wholly and exclusively for the purpose of business. In order to substantiate the methodology adopted, the appellant placed on record the copy of the technical expert on the basis of which the provision for the periodic maintenance charges was determined. Further, the amount of provision has been determined in the basis of a reasonable scientific method and on the basis of an historical experience. Thus, on perusal of the details submitted and the submission made it can be concluded that the provision was determined on the basis of scientific method and was reasonable. 9.3 Further, the appellant submitted that it follows mercantile system of accounting as otherwise referred to as accrual basis of accounting. The contractual obligation to carry out Periodic Maintenance is an integral part of the Concession granted to the appellant and is similar to the provisions for warranty. Further, the Hon'ble Apex Court in the case of Rotork Controls India Pvt. Ltd.(314 ITR 62 (SC) wherein the Hon'ble SC has treated the provision for contingent liabilities as allowable expense only on the fulfillment of certain conditions. It mentioned that the provision for

51 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. a contingent liability can be allowed as an expense only if it is ascertained according to a reasonable scientific method which uses historical experience and statistical analysis of previous years data. Since, in the case of the appellant there was a present obligation as a result of a past event alongwith an outflow of resources and a reliable estimate of the obligation was also possible. Further, the foreseeable loss on account of provision for maintenance expense was not a contingent liability but it was liable to be considered while determining the income of the assessee for the period under consideration. Such losses were ascertained losses on the maintenance portion of the contract though it was an estimation made in the light of the available information. Therefore, the appellant has incurred a liability, on the facts and circumstances of this case, during the relevant assessment year which was entitled to deduction under Section 37 of the 1961 Act. It is further seen that the identical issue had come up for consideration before the Hon'ble Pune Tribunal in the case of ACIT Vs. Ashoka Buildcon Ltd. [2015] 61 taxmann.com 330 wherein the Hon'ble ITAT has held that the foreseeable losses of future years could be recognized following rationale ofAS-7 and hence such provision was an allowable deduction. Therefore, I am of the opinion that the provision for periodic maintenance charges is to be allowed to appellant and thereby the addition made amounting to Rs. 19,90,59,0727- is deleted. In view of the aforesaid facts, the fourth ground of appeal is allowed."

52 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. 9.2.4. Material facts remaining the same in the case of the assessee during the year under reference, following the consistent views and findings of my Id. predecessor on this issue in the case of its sister concern in earlier Assessment Years as above, and the order of the Ld. ITAT referred to above, it is held that the provision for periodic maintenance charges is to be allowed to the assessee and thereby the addition made on this account amounting to Rs. 9,06,09,2277- is directed to be deleted. The ground is accordingly allowed. 14. After considering the aforesaid decision, we find 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 an independent consultant. Thus considering the decision of Apex court in the case of Rotork Controls India Pvt Ltd (314 ITR 62), the same is allowable as expense. Moreover, this view has been taken by the Tribunal in the case of assessee’s sister concern i.e. Kosi Bridge Infrastructure Co. Ltd. for the AY 2012-13, AY 2014-15 and AY 2015-16. Furthermore, a similar view has been taken by the Tribunal in assessee's sister concern case i.e. M/s. Gorakhpur

53 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. Infrastructure Co. Ltd. for the AY 2013-14, AY 2014-15 and AY 2015-16. Thus, the Ground no. 7 is dismissed.

15 In so far as Ground no. 8, relating to disallowance made u/s 14A, it has been admitted by both the parties that no disallowance u/s 14A has been made by the AO in his assessment order and ground taken is incorrect, therefore this ground is dismissed as infructuous.

54 I.T.A. No. 1588 & 1589/Mum/2021 M/s Andhra Expressway Ltd. आदेशकीप्रतितितिअग्रेतिि/Copy of the Order forwarded to : 1. अपीलधथी/ The Appellant 2. प्रत्यथी/ The Respondent 3. आयकरआयुक्त(अपील) / The CIT(A) 4. आयकरआयुक्त/ CIT- concerned 5. नवभधगीयप्रनतनननध, आयकरअपीलीयअनधकरण, मुंबई/ DR, ITAT, Mumbai 6. गधर्ाफधईल / Guard File आदेशानुसार/ BY ORDER,

.उि/सहायकिंजीकार (Dy./Asstt.Registrar) आयकरअिीिीयअतिकरण, मुंबई/ ITAT, Mumbai