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Facts
The assessee appealed against the CIT(A)'s order for AY 2018-19. Two main issues were raised: denial of deduction u/s 80IA on miscellaneous income and disallowance of amortization of leasehold land claimed as depreciation. The miscellaneous income arose from sharing inventory holding costs of a spare bearing, and the leasehold land amortization was related to a BOT agreement for a port berth.
Held
The Tribunal held that the miscellaneous income was derived from the business and eligible for deduction u/s 80IA, as it was a sharing of inventory carrying costs. For the leasehold land amortization, the Tribunal ruled that it was a business expenditure and not depreciation, and thus allowable, especially considering past precedents and CBDT circulars. Therefore, both grounds were decided in favor of the assessee.
Key Issues
Whether miscellaneous income from sharing inventory costs is eligible for deduction u/s 80IA? Whether amortization of premium paid for leasehold land in a BOT agreement is allowable as business expenditure and not depreciation?
Sections Cited
80IA, 143(3), 32(1)(ii), 37(1)
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Income Tax Appellate Tribunal, “A” BENCH, KOLKATA
Before: SHRI GEORGE MATHAN & SHRI RAJESH KUMAR
(निर्धारण वर्ा / Assessment Year : 2018-2019) International Seaport (Haldia) Vs ACIT, Circle-12(1), Kolkata Private Limited, C/o S.N.Ghosh & Associates, Advocates, 2, Garstin Place, 2nd Floor, Suite No.203, Off Hare Street, Kolkata-700001 PAN No. :AACI 9468 D (अपीलधर्थी /Appellant) (प्रत्यर्थी / Respondent) .. निर्धाररती की ओर से /Assessee by Shri Somnath Ghosh, AR रधजस्व की ओर से /Revenue by : Shri Santanu Ghosh, Sr.DR सुनवाई की तारीख / Date of Hearing : 11/12/2025 घोषणा की तारीख/Date of Pronouncement : 11/12/2025 आदेश / O R D E R Per Bench : This is an appeal filed by the assessee against the order of the ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi, dated 06.02.2023 for the assessment year 2018-2019.
It was submitted by the Ld.AR that two issues are involved in the assessee’s appeal, one is the denial of the deduction u/s.80IA of the Act in respect of miscellaneous income to an extra Rs.4,99,372/- and the second issue was disallowance of the disallowance of the amortization of the leasehold rent allegedly by the AO claiming the same to be claim of depreciation to an extent of Rs.42,32,776/-. It was submission that in respect of the one number imported Slewing Ring Roller bearing from the original manufacturer of the same i.e. Rothe Erde, Germany, which was an important and expensive spare required for the operation of the Stacking & Cargo for the Stacker-Reclaimer machine, as a part of the coal handling system. It was also used by Vizag Seaports Private Limited (VSPL) on account of the non-delivery schedule and expensive items both the assessee and Vizag Seaports Private Limited agreed that the spare bearing in stock with the assessee to be held as common spare and the cost of holding spares shall be shared equally. Consequently, the assessee has raised four quarterly invoices on agreed terms and conditions to share the inventory holding cost equally at 50% of the inventory carrying cost. It was the submission that the cost of said bearing was nearly Rs.66,01,327/- It was the submission that since the income related to the business as spare inventory carrying cost, the income had been booked during the year as miscellaneous business income and the assessee had claimed the deduction u/s. 80IA of the Act. It was the submission that for the Assessment Year 2013-14 the AO had granted the assessee the benefit of the deduction u/s.80IA of the Act for the said miscellaneous business income. For the Assessment years 2015-16, 2016-17, 2017-18 the Ld.CIT(A) had granted the assessee the said benefit. For the Assessment year 2017-18 the Ld.CIT(A)’s order was also shown at page 156 of the paper book in para 7 to 7.73 which reads as follows:- DECISION The Ground of appeal
no. 5 is general in nature and does not call for adjudication, Remaining grounds are adjudicated as under:
7. The Ground of appeal no. 2 relates to disallowing the claim of deduction u/s 80-1A on the miscellaneous income to the tune of Rs. 4,99,372. The appellant offered said miscellaneous Income as business income and claimed deduction under section BD-1A of the Act on the entire amount. During the assessment proceedings, the "Other Income" and concluded that said miscellaneous income was not derived from Industrial undertaking of the appellant. The source/details of the miscellaneous Income in question did not find, a mention in the assessment order u/s 143(3). Thus, the assessing officer disallowed the claim of deduction u/s 80- IA with respect to the above income offered as 'miscellaneous income'. 7.1 It is seen that for the assessment years 2015-16, and 2016-17 a similar issue was adjudicated by me in favour of the appellant. The amount disallowed under this head in the AY 2016-17 was exactly same as the disallowance made in the present assessment year Even though the assessing officer has not mentioned the particulars of the impugned miscellaneous income in the assessment order, relevant details are available in the assessment orders for the previous assessment years. The appellant also submitted relevant details vide written submission dated 02/11/2023. 7.2 The brief facts are that the appellant company imported an expensive Slewing Ring Roller Bearing from Germany as a spare part for its Stacker-Reclaimer Machine and incured inventory carrying cost for maintaining it as a part of its inventory. Another company by name, M/s.Vizag Seaports Pvt. Ltd. also uses the same machine for its operations and required to maintain the aforesaid Slewing Ring Roller Bearing as a spare. Since it is an expensive spare part and requires long delivery time, both companies agreed that the spare kept in stock at the appellant company be held as a common spare and that the cost of holding this spare shall be shared equally. Thus, the appellant company received 50% of the inventory carrying cost of the said spare part from the M/s. Vizag Seaports Pvt. Ltd. and offered as miscellaneous income. 7.3 I see no wrong in both companies using the same type of machinery agreeing to keep one expensive spare part as an inventory and share it's carrying cost. It is an undisputed fact that the spare part in question was procured by appellant as a part of the business activity of the industrial undertaking. Thus, any amount received towards maintenance of the spare part is nothing but an amount 'derived from' the business of the industrial undertaking. Therefore, I hold that the miscellaneous income of Rs. 4,99,372 is eligible for deduction u/s 80-IA of the Act. Ground of appeal no. 2 succeeds.
3. It was the submission that this finding of the Ld.CIT(A) for the earlier year have also been accepted by the revenue and no appeal has been filed before the Tribunal. It was submission that the assessment year 2018-19 is the last year of claim of deduction u/s.80IA of the Act. It was the prayer that addition as made by the AO and as confirmed by the Ld.CIT(A) is liable to be deleted.
In reply, the Ld.Sr DR submitted that the AO has in the assessment order noted that the income was not derived from the business activity, and, therefore, was not allowable for deduction u/s.80IA of the Act.
We have considered the rival submissions. A perusal of the facts in present case clearly shows that impugned assessment year is the last year for the assessee’s claim of deduction u/s.80IA of the Act. The miscellaneous income has been allowed in all the earlier years and the revenue has not challenged the relief granted to the assessee. For this year also, we find no reason as to why the stand should change especially when there is no change of the facts when compared to the earlier year. The fact that this is actually a sharing of the cost of the inventory which has been covered by the assessee for Vizag Seaports Private Limited, obviously, the same is eligible for the deduction u/s.80IA of the Act, insofar as it is a business income of the assessee. Thus, this issue is decided in favour of the assessee.
In regard to issue of the disallowance of the leasehold rent, which was amortized monetized but claimed as the depreciation, it was submitted by the Ld. AR that this issue was for the first time considered in the assessment year 2012-13 and allowed by the Ld.AO. Subsequently, for the assessment year 2017-18 and 2020-21 the AO had made disallowance Ld.CIT(A) had allowed the claim wherein the Ld.CIT(A) for the assessment year 2020-21 has in para 7 to 7.6 of his order held as follows:- 7. The Grounds of appeal no. 1 and 2 deal with disallowing the deduction for amortization of lease hold land of Rs. 42,32,776. The assessing officer has disallowed this amount holding that the 'depreciation on leasehold land is not allowable as per the provisions of Act. The assessing officer further observed that " the Auditor in the tax audit report had not mentioned the aforesaid claim of depreciation of Rs.42,32,776 in respect of leasehold land in the calculation of total allowable depreciation". At the assessment stage, the appellant relied upon the CBDT circular no. 9/2014 dated 23/04/2014 to canvas its contention, however the assessing officer rebutted it holding that the said circular is applicable only for the infrastructure projects for development of road/highways on BOT basis and that the appellant is not in the said business. 7.1 The appellant in its submission dated 02/11/2023 vehemently opposed the disallowance of amortization of leasehold land. The appellant submitted that it had incurred an amount of Rs. 11,96,08,329 as non-refundable and non-adjustable premium with other capital expenditure for the leasehold land as stipulated in the Build-Own-Transfer (BOT) agreement with Kolkata Port Trust, Haldia Dock Complex. The appellant further submitted that the said amount has been capitalized in the books of account and amortized over the entire lease period as per the license agreement, which is calculated at Rs. 42,32,776 per year. The appellant argued that the amount spent for construction of the berth no. 4A at Haldia port on the leasehold land was purely business expenditure and that the assessing officer has grossly mistaken the 'amortization' in question with 'depreciation'. The appellant prayed that the same should be allowed as business expenditure according to the provisions of the Income Tax Act. 7.2 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. 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. In the said circular, the CBDT has also held, following the law laid down by Hon'ble Supreme Court in Madras Industrial Investment Corp 225 ITR 802 (SC), that 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. Relevant extract of CBDT circular is as under:
4. There is no doubt that where the assessee incurs expenditure on a project for development of roads/highways, he is entitled to recover cost incurred by him towards development of such facility (comprising of construction cost and other pre-operative expenses) during the construction period. Further, expenditure incurred by the assessee on such BOT projects brings to it an enduring benefit in the form of right to collect the toll during the period of the agreement. Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. v. CIT 225 ITR 802 allowed spreading over of liability over a number of years on the ground that there was continuing benefit to the company over a period. Therefore, analogously, expenditure incurred on an infrastructure project for development of roads/highways under BOT agreement may be treated as having been made/incurred for the purposes of business or profession of the assessee and same may be to allowed be concessionaire agreement. spread during the tenure of (emphasis supplied) 7.3 The CBDT circular relied upon by the appellant is based on the ratio decidendi of Hon'ble Supreme Court in Madras Industrial Investment Corp (supra). In that case, the assessee was a public limited company, which had issued debentures at a discount of two per cent, redeemable after 12 years. The assessee in that case claimed the expenditure incurred by way of discount on debentures as revenue expenditure and wrote off proportionate expenditure for the relevant assessment year, taking into account the period of 12 years which was the period of redemption. Hon'ble Supreme Court held as under: "14. The Tribunal, however, held that since the entire liability to pay the discount had been incurred in the accounting year in question, the assessee was entitled to deduct the entire amount of Rs. 3 lakhs in that accounting year. This conclusion does not appear to be justified looking to the nature of the liability. It is true that the liability has been incurred in the accounting year. But the liability is a continuing liability which stretches over a period of 12 years. It is, therefore, a liability spread over a period of 12 years. Ordinarily, revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a number of years even if the assessee had written it off in his books over a period of years. However, the facts may justify an assessee who has incurred expenditure in a particular year to spread and claim it over a period of ensuing years. In fact, allowing the entire expenditure in one year might give a very distorted picture of the profits of a particular year. Thus, in the case of Hindustan Aluminium Corpn. Ltd. v. CIT [1983] 144 ITR 474, the Calcutta High Court upheld the claim of the assessee to spread out a lump sum payment to secure technical assistance and training over a number of years and allowed a proportionate deduction in the accounting year in question.
Issuing debentures at a discount is another such instance where, although the assessee has incurred the liability to pay the discount in the year of issue of debentures, the payment is to secure a benefit over a number of years. There is a continuing benefit to the business of the company over the entire period. The liability should, therefore, be spread over the period of the debentures.
The appellant, therefore, had, in its return, correctly claimed a deduction only in respect of the proportionate part of discount of Rs.12,500 over the relevant accounting period in question. In this connection, we agree with the reasoning and conclusion of the Madhya Pradesh High Court in the case of M.P. Financial Corpn. (supra). The view that we have taken is also in conformity with accounting practice of showing the discount in 'discount on debentures account' which is written off over the period of the debentures." 7.4 From the above decision of Hon'ble Supreme Court, which formed the basis of the CBDT's circular in question, it is clear that the expenditure incurred by the appellant has to be spread over the entire period during which the benefit accrues to the appellant. Further, the appellant's case had all the ingredients mentioned in the aforesaid CBDT circular, which are as follows: i) The appellant entered into a concessionaire agreement with Kolkata Port Trust, Haldia Dock Complex, a Government of India agency (under Ministry of Shipping) (ii) The appellant is not the owner of the land on which the project was constructed with appellant's own cost and its utilization thereof is only for a specified period iii) The infrastructural project constructed by the appellant was on Build-Operate-Transfer ('BOT') basis. iv) In lieu of consideration of the expenditure incurred on construction, operation and maintenance of the infrastructure facility covered by the period of the agreement, the appellant is accorded a right to collect 'user charges' from users of such facility. v) The expenditure incurred by the appellant on development and construction of such infrastructural facility are capitalized in the accounts. 7.5 In view of the above, I am of the considered opinion that the appellant's case is squarely covered by the CBDT circular even Build-Operate- Transfer ('BOT') basis. Further, respectfully following the decision of Hon'ble Supreme Court in Madras Industrial Investment Corp (supra), I hold that the amortization of land premium expenditure paid for the leasehold land by the appellant is an allowable expenditure over the lease period. 7.6 The amortization of leasehold land of Rs. 42.32 lakhs is not "depreciation" as opined by the assessing officer since the land is non-depreciable in nature. In the circumstances of the case, I delete the addition of Rs. 42,32,776, holding that the assessing officer is not justified in disallowing the amortization claimed on the premium paid on leasehold land to Kolkata Port Trust, Haldia Dock Complex. This ground of appeal
is allowed in favour of appellant.
7. It was submission that the assessee had paid Rs.11,96,08,329/- as a non-refundable and none adjustable premium with other capital expenditure for the leasehold rent as stipulated in the Build-Operate- Transfer (BOT) with Kolkata Port Trust, Haldia Dock Complex. The assessee had amortized this cost over a period of 30 years and the amortized cost was at Rs.42,32,776/-. It was submission that the Ld.CIT(A) after considering the facts of the case had allowed the amortized cost in the decision for the assessment year 2020-21 as reproduced hereinabove. It was submission that in appeal the Ld. CIT(A) had not considered the findings in the earlier years and had made disallowance. It was submission that disallowance may be deleted.
8. In reply, the Ld.DR vehemently supported the order of the AO and CIT(A).
9. We have considered the rival submissions. As it is noticed that for the assessment year 2012-13 the AO himself had allowed such amortization and for the assessment year 2017-18 & 2020-21, the Ld.CIT(A) has deleted such disallowance and the revenue has not filed any appeal, therefore, we are of the view that the addition as made by the AO and confirmed by the CIT(A) is liable to be deleted and we do so. In this circumstances, this issue is held in the favour of the assessee. Consequently the appeal of the assessee stands allowed.
In the result, appeal of the assessee is allowed. Order dictated and pronounced in the open court on 11/12/2025.