Is an assessee, who is not the owner of a fixed asset in the nature of a road project, ought to have amortized the corresponding expenditure of license fee etc.?

This Income Tax Appellate Tribunal case examines whether an assessee, who is not the owner of a road project, should have amortised expenditure like licence fees instead of claiming depreciation. The Assessing Officer argued for amortisation based on a CBDT circular for BOT projects. However, the CIT(A) treated the depreciation claim as relating to an intangible asset, specifically the right to collect toll, allowing it under Section 32(1)(ii) of the Income Tax Act.

IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES “A” : HYDERABAD
(THROUGH VIDEO CONFERENCE)

BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER
AND
SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER

I.T.A. Nos. 2119, 2120 & 2121/HYD/2018
Assessment Years: 2012-13, 2013-14 & 2014-15

Dy.Commissioner of
Income Tax,
Circle-16(2),
HYDERABAD
[PAN: AAECM7403L]
(Appellant) 

Vs

M/s.Madhurai Tuticorin
Expressways Ltd.,
HYDERABAD
(Respondent)

For Revenue : Shri R.Dipak, DR
For Assessee : Shri P.Murali Mohana Rao, AR

Date of Hearing : 22-04-2021
Date of Pronouncement : 09-06-2021

O R D E R

PER S.S.GODARA, J.M. :

These Revenue’s appeals for AYs.2012-13, 2013-14 & 2014-15 arise from the CIT(A)-4, Hyderabad’s orders; all dated 16-08-2018 passed in appeal Nos.0175 / 15-16 / ACIT,Cir.16(2) / CIT(A)-4 / Hyd / 17-18, 0008 / 16-17 / ACIT,Cir.16(2) / CIT(A)-4 / Hyd / 18-19 & 0393 / 16-17 / DCIT,Cir.16(2) / CIT(A)-4 / Hyd / 18-19; respectively involving proceedings u/s.143(3) of the Income Tax Act, 1961 [in short,‘the Act’].

Heard both the parties. Case files perused. 

2. We notice during the course of hearing that the Revenue’s identical first and foremost substantive ground in former two appeals ITA Nos.2119 & 2120/Hyd/2018 seeks to revive the Assessing Officer’s action denying depreciation claim of Rs.43,17,06,474/- and Rs.1,41,73,68,447/-; assessment year-wise, respectively. Its case as per the corresponding grounds’ averments is that the assessee; who is not owner of the fixed asset in the nature of the road project concerned,ought to have amortized the corresponding expenditure of license fee etc. as per the CBDT’s circular No.9/2014, dt.23-04-2014. We notice in this factual backdrop that the CIT(A)’s detailed discussion treating the assessee’s depreciation claim to be in the nature of a right to collect toll forming an intangible asset u/s.32(1)(ii) of the Act reads as under:

“5. Ground no.3, 4 & 9 to 11 are with regard to disallowance of depreciation of Rs.203,68,32,837/- by treating the same as capital expenditure to be amortised. In this regard, the Assessing Officer submitted as under:

On perusal of Depreciation of fixed assets/ it is observed that the assessee-company is claiming depreciation of Rs.245,61,03,549/-@25% on the opening WDV of Rs.982,44,14,194/-.

However, there were several disputes on the expenditure incurred on development and construction facilities like roads/highways on BOT basis. To put an end to these disputes, CBDT has issued a circular vide no. 09/2014 dated 23.04.2011 which has clarified all the issues regarding allowability of depreciation on projects developed under BOT.

Therefore, in order to amortize the expenditure incurred, the cost of construction on development of infrastructure facility, copy of concessionaire agreement, time taken for creation of such facility and date of commencement etc. were called for. The assessee-company submitted the information called for.

After perusal of the information submitted, the amount to be amortized and amount of amortization allowable as business expenditure under the Act for the FY 2011-12 relevant to AY 2012-13 was calculated at Rs.41,92,70,712/-. In view of this, excess claim of depreciation of Rs.203,68,32,837/-(Rs.245,61,03,549 - Rs.41,92,70, 712) 

To know more in details find the attachment file