BSC C&C Kurali Toll Road Ltd. vs ACIT: Depreciation Rate and Major Maintenance Provision Dispute in ITA 6566/DEL/2019

BSC C&C Kurali Toll Road Ltd. vs ACIT: Depreciation Rate and Major Maintenance Provision Dispute in ITA 6566/DEL/2019

Case Number: ITA 6566/DEL/2019
Assessment Year: 2016-17
Filed Date: 2019-08-07
Order Date: 2022-10-06
Pronounced On: 2022-10-06

Background:

BSC C&C Kurali Toll Road Ltd., a company involved in the development and operation of toll roads, filed an appeal against the order of the Assistant Commissioner of Income Tax (ACIT), Circle-5(1), New Delhi, for the assessment year 2016-17. The key issues in the appeal were the reduction of the depreciation rate on toll roads from 25% to 10%, the disallowance of a provision made for major maintenance expenses, and the non-allowance of depreciation on plant, machinery, and computers.

Why the Case Was Filed:

The case was filed by BSC C&C Kurali Toll Road Ltd. to contest several points in the assessment order passed by the ACIT. The main points of contention were:

• Reduction of Depreciation Rate: The appellant argued that the depreciation on toll roads should be allowed at 25% under the category of intangible assets, rather than the reduced rate of 10% applied by the ACIT, which classified the roads as ‘buildings’.
• Disallowance of Provision for Major Maintenance: The appellant contended that the provision for major maintenance, based on a systematic estimate of future expenses, was legitimate and should not have been disallowed as a contingent liability.
• Non-Allowance of Depreciation on Plant and Machinery: The appellant also disputed the non-allowance of depreciation on certain assets without a proper explanation or a speaking order.

Tribunal’s Findings:

1. Depreciation on Toll Roads:

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, referenced its previous ruling in the appellant’s case for the assessment years 2012-13 and 2013-14, where it had decided in favor of the appellant, allowing depreciation at the rate of 25% for toll roads as intangible assets. Since this decision had not been overturned by any higher authority, the ITAT ruled that the appellant was entitled to claim depreciation at 25% on toll roads for the assessment year 2016-17 as well.

2. Provision for Major Maintenance:

The ITAT also addressed the issue of the provision for major maintenance. The Tribunal referred to its earlier decision, which allowed such provisions based on systematic estimates of future expenditures, and cited relevant judgments from the Supreme Court, including Rotork Controls India (P.) Ltd. vs. CIT and Bharat Earth Movers vs. CIT. The ITAT concluded that the provision made by the appellant was in accordance with established principles of law, and therefore, the disallowance of Rs. 9,79,60,000/- by the ACIT was unjustified and was overturned.

3. Depreciation on Plant and Machinery:

The appellant also challenged the non-allowance of depreciation on plant and machinery. The ITAT found that the Commissioner of Income Tax (Appeals) [CIT(A)] had already directed the ACIT to correct calculation errors regarding depreciation, and therefore, the ITAT dismissed this ground as infructuous, noting that it had been addressed appropriately by the CIT(A).

Conclusion:

The ITAT, Delhi Bench, largely ruled in favor of BSC C&C Kurali Toll Road Ltd., allowing the appeal concerning the depreciation rate on toll roads and the provision for major maintenance. The Tribunal’s decision reaffirmed the application of a 25% depreciation rate for toll roads as intangible assets and recognized the validity of provisions made for major maintenance expenses.

Order Pronounced in Open Court: 6th October 2022

Bench: Shri Shamim Yahya, Accountant Member, and Shri Narender Kumar Choudhry, Judicial Member

BSC C&C Kurali Toll Road Ltd. vs ACIT: Depreciation Rate and Major Maintenance Provision Dispute in ITA 6566/DEL/2019