BSC C&C Kurali Toll Road Ltd. vs ACIT: Depreciation Rate Dispute and Provision for Major Maintenance in ITA 6565/DEL/2019

BSC C&C Kurali Toll Road Ltd. vs ACIT: Depreciation Rate Dispute and Provision for Major Maintenance in ITA 6565/DEL/2019

Case Number: ITA 6565/DEL/2019
Assessment Year: 2015-16
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 engaged in the development 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 2015-16. The primary issues in this appeal were the reduction of the depreciation rate on toll roads from 25% to 10% and the disallowance of a provision made for major maintenance, amounting to Rs. 9,79,60,000/-. Additionally, the appellant contested 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 challenge several aspects of the assessment order passed by the ACIT. The key contentions 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 considered the roads as ‘buildings’.
• Disallowance of Provision for Major Maintenance: The appellant contended that the provision for major maintenance, which was based on a systematic estimate of future expenses, should not have been disallowed as contingent liability.
• Non-Allowance of Depreciation on Plant and Machinery: The appellant also disputed the non-allowance of depreciation on certain assets without a speaking order.

Tribunal’s Findings:

1. Depreciation on Toll Roads:

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, referred to its own decision in the appellant’s case for previous assessment years (2012-13 and 2013-14), where it had ruled in favor of the appellant, allowing depreciation at the rate of 25% for toll roads as intangible assets. The Tribunal noted that this precedent was still valid and had not been overturned by a higher court. Accordingly, the ITAT ruled that the appellant was entitled to claim depreciation at 25% on toll roads.

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. The ITAT held that the provision was legitimate and in accordance with established principles of law, particularly citing judgments from the Supreme Court in cases like Rotork Controls India (P.) Ltd. vs. CIT and Bharat Earth Movers vs. CIT. Therefore, the disallowance of Rs. 9,79,60,000/- by the ACIT was overturned.

3. Depreciation on Plant and Machinery:

The appellant also raised concerns about 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. Therefore, the ITAT dismissed this ground as infructuous, considering it had been addressed appropriately by the CIT(A).

Conclusion:

The ITAT, Delhi Bench, ruled largely in favor of BSC C&C Kurali Toll Road Ltd., allowing the appeal regarding the depreciation rate on toll roads and the provision for major maintenance. The Tribunal’s decision affirmed the applicability of a 25% depreciation rate for toll roads as intangible assets and recognized the legitimacy 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 Dispute and Provision for Major Maintenance in ITA 6565/DEL/2019