Loading judgment…
Facts
The assessee, M/s. TN(DK) Express Ways Limited, engaged in BOT infrastructure projects, filed its return for AY 2013-14. The Assessing Officer made additions for disallowance of provision for periodic maintenance, disallowance of excess depreciation/amortization after reducing NHAI grant from capital cost, and disallowance under Section 36(1)(va) for belated PF payments. The CIT(A) partly allowed relief for Section 36(1)(va) but sustained additions for periodic maintenance and depreciation, leading the assessee to appeal before the Tribunal.
Held
The Tribunal held that the provision for periodic maintenance was an allowable deduction as it was based on scientific methods and prior Tribunal decisions in the assessee's own case. It further held that the NHAI grant was in the nature of shareholder funds and could not be reduced from the project's capital cost for depreciation/amortization purposes, also relying on previous Tribunal decisions in similar cases. Accordingly, the additions made by the A.O. for both issues were directed to be deleted.
Key Issues
1. Whether provision for periodic maintenance is an allowable deduction even if expenditure is not incurred in the current year. 2. Whether NHAI grant should be reduced from the capital cost of a project for calculating depreciation/amortization.
Sections Cited
143(3), 36(1)(va), 43(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Hyderabad ‘ A ‘ Bench, Hyderabad
करदाता का प्रतततितित्व/ : Shri P. Murali Mohan Rao, Assessee C.A. Represented by राजस्व का प्रतततितित्व/ : Ms. U. Mini Chandran – Department Represented by CIT-DR सुिवाई समाप्त होिे की ततति/ : 06.08.2025 Date of Conclusion of Hearing घोर्णध की तधरीख/ 17.10.2025 : Date of Pronouncement O R D E R PER MANJUNATHA G., A.M : This appeal filed by the assessee company is directed against the order of the Commissioner of Income Tax (Appeals) -2, Hyderabad, dated 30.11.2016 and pertains to the assessment year 2013-14. 2 M/s. TN(DK) Express Ways Limited
The assessee has raised the following grounds in the instant appeal :
“1. The Ld. Commissioner of Income Tax (Appeals) erred in facts and in law by confirming the additions made by the Assessing Officer towards 'disallowance of provision for periodic maintenance' and 'disallowance of excess depreciation'.
2. The Ld. CIT (Appeals) erred in confirming addition of Rs. 5,90,50,000/- made A.O, towards 'disallowance of provision for periodic maintenance.
The Ld. CIT (Appeals) ought to have appreciated the fact that the Appellant is under obligation to carry out repairs and refurbishment of tolling system and hardware and other equipment for every five years and carry out major maintenance work, for which huge expenditure is required to be incurred throughout the concessionaire period of 20 years.
The Ld. CIT (A) ought to have appreciated the matching principle concept in respect of provision for the year under consideration as the need for incurring the expenditure arises over a period of time.
The Ld. CIT (A) ought to have appreciated the fact that the Appellant is following the significant accounting policies viz., mandatory accounting standards (AS) issued under Companies Accounting Standard Rules, 2006 and relevant provisions of Companies Act, 1956.
6. The Ld.CIT (A) ought to have appreciated the fact that the Appellant has prepared financial statements under the historical cost convention on accrual basis and has been following the accounting policies consistently over the years.
7. The Ld.CIT (A) ought to have appreciated the fact that the Appellant has created the provision towards periodic maintenance on proportionate basis as per the accrual system of accounting in a scientific manner and therefore it is an ascertained liability and it is an allowable deduction under the provisions of Income Tax Act.
8. The Ld.CIT (A) ought to have appreciated the fact that deduction should be allowed although liability may have to be quantified and discharged at a future date, when it is definite to incur such liability.
9. Without prejudice to the grounds at Sl.no. 2 to 8 above, the Ld. CIT (A) erred in not adjudicating the grounds at sl.no. 3, 4, 5 and 6 of the appeal filed by the Appellant before him and by not passing a speaking order on this issue. SAO, towards disallowance of excess depreciation by holding that grant received.
3 M/s. TN(DK) Express Ways Limited
The Ld. CIT (A) erred in confirming the addition of Rs. 33,03,76,703 made by the from NHAI was towards the capital cost of the project and hence the same should be reduced from the cost of the capital asset before allowing depreciation.
11. The Ld. CTT (A) ought to have appreciated the fact that out of Rs. 86 crores paid by the NHAI towards grant to the Appellant, Rs. 11.34 crores is related to operations and maintenance expenses and the balance amount of Rs. 74.66 crores relates to the shareholders' funds which has nothing to do with the depreciation/amortization on fixed assets. 12. The Ld. CIT (A) ought to have appreciated the fact that the cash support by way grant provided by the NHAI is that of 'Capital reserve' and it is only for meeting the Promoters' contribution by way of equity supporting and it does not come under cost of the project. 13. The Ld. CIT (A) ought to have appreciated the fact that the Appellant has correctly computed and claimed eligible depreciation/amortization of expenses in accordance with CBDT Circular no. 9/2014. 14. The Ld. CIT (A) ought to have appreciated the fact that the grant given by NHAI is not for specific purpose of meeting a portion of the cost of plant and machinery and it is used for the smooth functioning of the contract with NHAI and therefore the amount of Grant-Capital Reserve is not deductible while computing the actual cost of the asset as defined in section 43(1) for the purpose of calculating depreciation. 15. The Ld. CIT (A) ought to have appreciated the fact that the grant given by the NHAI has no nexus with the cost of the asset as it was not used for the purpose of acquiring any particular kind of asset. 16. Without prejudice to the grounds at sl.no. 10 to 15 above, the Ld. CIT
(A) erred in not adjudicating ground nos 9 and 10 of the appeal filed by the Appellant before him and in not passing a speaking order on this issue. 17. The Appellant may add or alter or amend or modify or substitute or delete and/or rescind all or any of the grounds of appeal at any time before or at the time of hearing of the appeal.”
3. The brief facts of the case are that the assessee company M/s.TN(DK) Express Ways Limited is engaged in the business of operating Infrastructure Project on BOT basis, filed its return of 4 M/s. TN(DK) Express Ways Limited income for A.Y. 2013-14 on 30.09.2013 declaring total loss of Rs.47,00,80,518/-. The case was selected for scrutiny, and the assessment has been completed u/s 143(3) of the Income Tax Act, 1961 and determined total income or loss at Rs. (-)8,05,16,553/- by inter alia making additions towards disallowance of provision for periodic maintenance of Rs.5,90,50,000/-, disallowance of excess depreciation/amortization of expenditure incurred for construction of roads for Rs.33,03,76,703/- and disallowance u/s 36(1)(va) of the Act, towards belated payment of employees’ contribution to Provident Fund for Rs.1,37,262/-.
4. Aggrieved by the assessment order, the assessee preferred appeal before the Ld. CIT(A) and challenged additions made by the A.O. towards disallowance of provision for periodic maintenance expenses, disallowance of excess depreciation/amortization of expenditure incurred for construction of roads and also disallowance of employees’ contribution to P.F. u/s 36(1)(va) of the Act.
5. The Ld. CIT(A) after considering submissions of the assessee and also taking note of various reasons given by the A.O. to make 5 M/s. TN(DK) Express Ways Limited disallowances, partly allowed the appeal filed by the assessee, where the Ld. CIT(A) allowed relief in respect of addition made u/s 36(1)(va) of the Act, however, sustained additions made towards disallowance of provision for periodic maintenance expenses and disallowance of excess depreciation/amortization of expenditure incurred for construction of roads.
Aggrieved by the order of Ld. CIT(A), the assessee is now in appeal before the Tribunal.
The first issue that came up for our consideration from Ground Nos. 2 to 9 of assessee's appeal is addition of Rs.5,90,50,000/- towards disallowance of provision for periodic maintenance expenses. The A.O. made addition towards provision for periodic maintenance expenses of Rs.5,90,50,000/- on the ground that it is only a provision and has not incurred any expenditure on maintenance work during the year under consideration. Further, the assessee has failed to prove the method followed for making provision, including any scientific basis for making provision in the books of accounts. Therefore, the 6 M/s. TN(DK) Express Ways Limited A.O. disallowed the expenditure and added it to the total income of the assessee.
On appeal, the Ld. CIT(A) confirmed the additions made by the A.O. on the ground that it is only a provision made in the books of accounts without there being any accrual of liability towards maintenance expenses and thus, is not allowable as expenditure.
The learned counsel for the assessee Shri P.Murali Mohan Rao, C.A. submitted that the assessee in pursuant to Concessionaire Agreement with National Highways Authority of India (for short “NHAI”) is required to maintain road for every five years, for which, on the basis of agreed terms between the assessee and the NHAI, made an estimation of expenditure required for maintenance of the road for next five years. Although the assessee may not have incurred the expenditure for the year under consideration, but the provisions made in the books of accounts are on the basis of liability to be incurred by the assessee towards maintenance expenses, which is further based on the agreement between the assessee and NHAI. Therefore, the 7 M/s. TN(DK) Express Ways Limited A.O. has erred in making the additions towards provision for maintenance of periodic expenses as an unascertained liability. The learned counsel for the assessee further submitted that this issue is squarely covered by the decision of ITAT, Hyderabad Benches in assessee's own case for the assessment years 2011-12 and 2012-13, where the identical issue of provision for periodic maintenance expenses has been allowed. Therefore, he submitted that the additions made by the A.O. should be deleted.
10. The Ld.CIT-DR Ms. U. Mini Chandran, on the other hand, supporting the order of Ld. CIT(A), submitted that the assessee has merely made a provision in the books of accounts without there being any actual accrual of expenditure on the basis of past events, and liability on the said event is required to be discharged in the subsequent financial years. Further, the assessee has not incurred any expenditure for the year under consideration. Since the liability is only a contingent liability and unascertained for the year under consideration, the A.O. has rightly disallowed the expenditure. The Ld. CIT(A), after considering relevant facts, has 8 M/s. TN(DK) Express Ways Limited rightly sustained additions made by the A.O., and thus, the order of the Ld. CIT(A) should be upheld.
We have heard both parties, perused the material on record, and had gone through the orders of the authorities below. The assessee has made a provision for periodic maintenance of roads constructed in terms of Concessionaire Agreement between the assessee and NHAI, and as per the said Concessionaire Agreement ,the assessee is required to carry out periodic maintenance of the Highway for every five years, and the parties have agreed on estimating the expenditure for five-year period, even though the actual expenditure may be incurred in different financial years. Therefore, in our considered view, the provision made by the assessee for periodic maintenance of expenses is not an ad hoc provision, but a provision made on the basis of scientific methods based on past events and future liability to be incurred by the assessee in the subsequent financial years. We further noted that, an identical issue has been considered by the Tribunal in assessee's own case for AY 2011-12 and 2012-13, where the Tribunal by following its earlier order has deleted the additions 9 M/s. TN(DK) Express Ways Limited made by the A.O. The relevant findings of the Tribunal are as under:
“7. Considered the rival submissions and perused the material on record. The provision created by the assessee was disallowed by the AO on the ground that no expenditure was incurred during the year under consideration, therefore, such provision cannot be allowed. In the case of Ashok Buildcon Ltd (supra), the Pune Bench of ITAT held that "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 prices. As por AS-7, the assessee is entitled to make provision for foreseeable losses. In the case of Om Metals & Minerals (P) Ltd. (supra), the Hon'ble High Court of Rajasthan upheld the findings of the Tribunal that assessee made provision of supplies for possible loss due to deduction made by Govt for not keeping supplies to satisfaction of department and further entire amount was included by the assessee in total receipts and once entire receipts had been shown, expenditure ought to have been allowed. 7.1 In view of the ratios laid down as above, we are in agreement with the assessee that in the mercantile accounting system the expenditure to be absorbed on periodic basis. In the given case, the expenditure to be incurred after 5 years and assessee cannot charge to P&L account whole 5 years expenditure on year 5. Rather, it has to charge to P&L A/c every year proportionate to the year of liability. Therefore, we set aside the order of CIT(A) and allow the provision made by the Assessee towards periodic maintenance."
In this view of the matter and by respectfully following the decision of Coordinate Bench of ITAT, Hyderabad in assessee's own case for AY 2011-12, we direct the A.O. to delete the additions made towards disallowance of provision for periodic maintenance expenses.
10 M/s. TN(DK) Express Ways Limited
The next issue that came up for our consideration from Ground Nos. 10 to 16 of assessee's appeal is the addition of Rs. 33,03,76,703/- made towards disallowance of excess depreciation claimed by the assessee after reducing grant received from NHAI towards capital cost of the project. The facts with regard to the impugned dispute are that, the assessee company is engaged in the business of construction of National Highways on BOT basis had entered into a Concessionaire Agreement for development of National Highways. Pursuant to the agreement with NHAI, the assessee company has received grant of Rs. 74,66,00,000/- from NHAI and the same has been treated as capital receipt and credited to the Capital Reserve Fund. The A.O. made addition of Rs. 33,03,76,703/- towards excess claim of depreciation/ amortization on capital cost incurred towards construction of roads by reducing the grant received from NHAI for an amount of Rs. 74,66,60,000/- on the ground that, in terms of Circular No. 9 of 2014 dated 23-04-2014 issued by the CBDT, the assessee needs to reduce any grant received from NHAI etc. from the capital cost before claiming depreciation/amortization of expenditure. Therefore, reworked depreciation/amortization claimed by the 11 M/s. TN(DK) Express Ways Limited assessee by taking into account the total capital cost incurred by the assessee for construction of roads and then reduced the grant received from NHAI and computed depreciation allowable for each assessment year right from AY 2010-11 and up to AY 2013-14 and excess depreciation claim of Rs. 33,03,76,703/- has been disallowed and added back to the income of the assessee.
Aggrieved by the assessment order, the assessee preferred appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee submitted that grant received from NHAI is a capital receipt in the nature of shareholder funds, which is evident from Clauses 23.1 to 23.5 of Concessionaire Agreement between the assessee and NHAI, where the NHAI provides for grant of Rs. 74.66 crores and the same should be treated as shareholder funds. The Ld. CIT(A) after considering the relevant submissions of the assessee and also taking note of CBDT Circular No. 9 of 2014 dated 23-04- 2014, observed that the circular issued by the CBDT mandates that the cost of construction on development of infrastructure facility or roads/highways under BOT mode may be amortized and claimed as an allowable business expenditure after reducing 12 M/s. TN(DK) Express Ways Limited grant, if any received from the Government or NHAI for such purposes. Since the assessee has received grant from NHAI towards capital cost of the project, the A.O. has rightly reduced the grant received from NHAI from the capital cost incurred for development of roads and amortized the expenditure/allowed depreciation as per law. Therefore, Ld. CIT(A) rejected the explanation of the assessee and sustained the additions made by the A.O.
Aggrieved by the order of Ld. CIT(A), the assessee is now in appeal before the Tribunal.
The learned counsel for the assessee submitted that the Ld. CIT(A) erred in upholding the additions made by the A.O. towards disallowance of excess depreciation/amortization of expenses incurred for construction of roads/highways, even though the grant received from NHAI is a capital receipt being part of shareholder funds and not provided specifically for any asset. Therefore, the question of reduction of said grant from the cost of the project does not arise. The Ld. AR for the assessee further submitted that this issue is squarely covered in favour of the 13 M/s. TN(DK) Express Ways Limited assessee by the decision of Tribunal in the case of DCIT Vs. Madhucon Agra Expressways Ltd in and 286/Hyd/2018, where under identical set of facts and under identical grant received from NHAI towards capital cost of the project, the Tribunal held that it is in the nature of shareholder funds and cannot be reduced from the cost of the project for the purpose of allowing depreciation or amortization. Therefore, he submitted that the additions made by the A.O. should be deleted.
The Ld. CIT-DR, on the other hand, supporting the order of Ld. CIT(A) submitted that, any grant received from Government or authority, including NHAI, for the purpose of offsetting the cost of project should be reduced from the cost of the project before allowing the depreciation/amortization. Further, the CBDT issued a circular No. 9 of 2014 dated 23-04-2014 and explained the method of allowing amortization towards capital cost incurred on BOT projects. As per the circular issued by the CBDT, amortization of expenses shall be allowed after reducing grant, if any received from Government or NHAI. The A.O., after considering relevant facts, has rightly reworked depreciation 14 M/s. TN(DK) Express Ways Limited allowable/amortization of expenses after reducing grant received from NHAI of Rs. 74,66,60,000/- from the capital cost of road/highways and thus, the Ld. CIT(A), after considering the relevant facts, has rightly sustained the additions made by the A.O. Therefore, the Ld. CIT-DR submitted that the additions made by the A.O. should be upheld.
We have heard both parties, perused the material on record, and had gone through the orders of the authorities below. We have also considered relevant case laws relied upon by the Ld. AR for the assessee, including the decision of ITAT, Hyderabad Bench in the case of DCIT Vs. Madhucon Agra Expressways Ltd in and 286/Hyd/2018 (supra) and we find that, an identical issue has been considered by the Coordinate Bench of the Tribunal in the case of DCIT Vs. Madhucon Agra Expressways Ltd and, after considering relevant facts, has held as under :
“5. We have considered the rival submission as well as relevant material available on record. The Assessing Officer has made an addition by disallowing the part of depreciation as a result of reduction of WDV to the extent of NHAI grant of Rs.38.40 crores from the cost of the project. The relevant findings of the Assessing Officer on this issue in para 3.2 to 3.3 as under:
15 M/s. TN(DK) Express Ways Limited 3.2 From the above operating part of the Concessionaire Agreement it is clear that the NHAI grant shall be utilized to meet the capital cost of the project. Therefore the cost of the Capital Asset, in the present case, shall be reduced to the extent of Rs. 38,40 Crores, and the remaining amount only shall be capitalized. During the F.Y.2009-10 relevant to the A.Y. 2010-11, the assessee company has capitalized the expenditure incurred on the project amounting to Rs. 326,70,55,057/-. But on the verification of the break-up of WDV of BoT Project, it is noted that the assessee has not deducted the NHAI grant received from WDV of the project cost. 3.3 In view of the facts discussed as above, the cost of BoT Project is reduced to the extent of NHAI grant received and actual Cost is arrived as under: Cost of BoT Project capitalized by the Rs,3,26,70,55,057/- Assessee Less: NHAI Grant Received Rs.38,40,00,000/- Effective Cost of Capital Asset Rs.2,88,30,55,057/- The depreciation on the BoT project is to be computed based on the effective Cost of Capital Asset, as determined above.
6. Thus, the Assessing Officer has treated the grant given by NHAI to be utilized to meet the capital cost of the project and accordingly reduced the same from the WDV of the project for the purpose of allowing the depreciation. It is clear from clause 23.1 to 23.3 that this grant was given by the NHAI as a cash support by way of outright grant as a shareholders fund. Naturally the assessee cannot use the said grant given by the NHAI other than meeting the cost of the project but that does not lead to the conclusion that the grant was given by NHAI as a portion of cost of asset acquired by the assessee met directly or indirectly as provided in Explanation (10) to section 43 of the I.T. Act, 1961. It is the cash support in the nature of shareholders fund to make the project viable and to provide financial strength to the assessee to avail further financial support from the financial institutions in the shape of loan. The learned CIT (A) has considered this issue in para 5.3 to 5.3.2 as under: “5.3 I have carefully considered the assessment order and submissions of the appellant. With regard to disallowance of depreciation of Rs. 42,43,34,676/-, the Assessing Officer has made a detailed discussion at para 3 to 4.4 of the assessment order which is verified. In this regard, the submissions of the appellant were also verified. With regard to NHAI grant of Rs. 38,40,00,000/-which was reduced from the cost of BoT Project of Rs. 326,70,55,057/- by the Assessing Officer was not accepted after considering the 16 M/s. TN(DK) Express Ways Limited submissions of the appellant. As per para 3.1 of the assessment order also it is clear that the point No. 23.2 of Chapter-V, the Assessing Officer himself has mentioned the clause of 23.1, which describes about the NHAI grant as under: "23.3 Subject to provisions of the clause 23.4, the grant shall be applied by the Concessionaire for meeting the capital cost of the project and shall be treated as part of the Shareholders funds". 5.3.1 Further, the Assessing Officer himself has observed the grant as Shareholders funds and therefore the appellant has rightly taken this fund into "Reserves and Surplus" and hence not to be reduced from the expenditure incurred Therefore, treating the effective cost of capital expenditure of Rs. 2,88,30,55,057/- was not correct and hence, the expenditure will be Rs. 326,70,55,057/- as claimed by the appellant. 5.3.2 Further, it is noticed that for the earlier years also, the appellant has claimed 25% of the depreciation but the Assessing Officer has not allowed the same. Therefore, in this regard, the Assessing Officer is directed to amortize the total amount and calculate the depreciation for all the years and allow accordingly.”
7. Thus, it is clear that the learned CIT (A) has given the finding based on the analysis of facts and law which is also supported by various decisions as relied upon by the assessee. Therefore, we do not find any error or illegality in the order of the learned CIT (A), qua this issue.”
In this view of the matter and by respectfully following the decision of ITAT, Hyderabad Bench in the case of DCIT Vs. Madhucon Agra Expressways Ltd (supra), we direct the A.O. to delete the additions made towards disallowance of excess depreciation/amortization claimed on capital cost being expenditure incurred on construction of roads/highways.
17 M/s. TN(DK) Express Ways Limited
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the Open Court on 17th October, 2025. (मंजूिधथ जी) श्री विजय पाल राि (MANJUNATHA G.) (VIJAY PAL RAO) लेखा सदस्य/ACCOUNTANT MEMBER उपाध्यक्ष /VICE PRESIDENT