Income Tax Appellate Tribunal - Delhi
Moradabad Toll Road Company Ltd., New ... vs Assessee
ITA NO. 1426/Del/2011
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "E", NEW DELHI
BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER
AND
SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER
I.T.A. No. 1426/Del/2011
A.Y. : 2007-08
M/s Moradabad Toll Road Company vs. ACIT, Circle 5(1),
Limited, New Delhi
G-5&6, Sector-10, Dwarka, CR Building, 4th floor, IP Marg, New
New Delhi - 110 075 Delhi
(PAN: AABCM9154B)
(Appellant ) (Respondent )
Assessee by : Sh. S.C. Gupta, CA
Department by : Sh. Raj Tondon, Sr. D.R.
ORDER
PER SHAMIM YAHYA: AM This appeal by the Assessee is directed against the order of the Ld. Commissioner of Income Tax (Appeals)-VIII, New Delhi dated 28.1.2011 pertaining to assessment year 2007-08.
2. The grounds raised read as under:-
"1 That the learned Assessing Officer has erred on facts and in law in passing the impugned order and the CIT(A) in confirming the same, which is without jurisdiction, contrary to law, equity and justice, facts and material on record, is arbitrary, based on 1 ITA NO. 1426/Del/2011 conjectures and surmises, passed without application of mind and without following the procedure laid down by the Apex Court.
2 That without prejudice to this generality, the learned AO has erred on facts and in making and CIT(A) in confirming the following disallowances and/or additions to the income u/s 143(3):
a) ` 7,16,79,768/- on account of excess depreciation claimed on roads since toll road is plant and applicable rate of depreciation is 15% and not 10%.
b) Allowable depreciation calculated at ` 3,70,92,664/-
is also wrong and should have been allowed on W.D.V. basis, calculated on the basis of depreciation actually allowed in the earlier years.
c) ` 86,224/- on account of audit fees.
3 That the learned AO has erred on facts and in law in ordering initiation of penalty proceedings u/s 271(1)(c).
2ITA NO. 1426/Del/2011 4 That any other or further grounds of appeal may also be allowed to be taken at the time of hearing of the appeal.
5 That appellant craves leave and sanction of the Hon'ble ITAT to file additional evidence, if so required for proper prosecution of the case, based on facts and circumstances, which has not been or could not be adduced or filed before lower authorities either because proper and sufficient opportunity was not provided or because it was not solicited or its need was not appreciated."
3. Apropos issue of depreciation:-
Assessee company is 100% subsidiary of NHAI and formed with the sole objective of constructing the highway and bypass at Moradabad and the assessee company executed the project on Build- Operate-Transfer (BOT) basis. Assessing Officer noted that since earlier years, the assessee company had been claiming the depreciation on roads @ 25%, whereas in all the assessment as well as in the appeal orders, the same was held to be @ 10%. Assessing Officer further found that assessee had calculated the amount 3 ITA NO. 1426/Del/2011 depreciation on the original cost in case of all the assets, instead of Written Down Value (WDV). Assessing Officer further found that assessee had claimed depreciation amounting to ` 10,87,71,732/- calculated on the original cost of the fixed assets, whereas, as per provisions of section 32, the amount of depreciation allowable is ` 3,70,92,664/-, calculated on the amount of WDV.
4. Upon assessee's appeal, Ld. Commissioner of Income Tax (Appeals) held that the case laws relied upon by the assessee do not lend any support to the cause of the assessee. He held that in view of the past history of the case, he was of the firm opinion that the depreciation with reference to the roads has to be allowed only @ 10% and the action of the Assessing Officer was accordingly sustained.
5. Against the above order the assessee is in appeal before us.
6. We have heard the rival contentions in light of the material produced and precedent relied upon. Ld. counsel of the assessee placed reliance on the following case laws:-
247 ITR 803 Indore Municipal Corpn. Vs. C.I.T. 156 ITR 283 C.I.T. vs. Coromandal Fertilizers Ltd. 196 ITR 149 C.I.T. vs. Gwalior Rayon Silk Mfg. Co. Ltd. 4
ITA NO. 1426/Del/2011 6.1 He further relied upon the case of Maharastara State Road Corporation Ltd. vs. ACIT, Mumbai Tribunal decision dated 21.5.2008.
Ld. counsel of the assessee further submitted that the roads were actually plant of the assessee and should be allowed depreciation applicable to the plant.
6.2 Ld. Departmental Representative on the other hand supported the orders of the authorities below. He placed reliance upon the following case laws:-
- Tamilnadu Road Development Co. Ltd. vs. ACIT (2009) 120 ITD 20 (Chennai).
- C.I.T. vs. Gwalior Rayon Silk Mfg. Co. Ltd. (1992) 196 ITR 149 (SC).
- C.I.T. vs. Mahindra Sintered Products (1993) 201 ITR 605 (Bom).
- C.I.T. vs. Gujrat State Fertilizers Co. Ltd. (1993) 203 ITR 526 (Guj.) 6.3 We have carefully considered the submissions and perused the records. The question before us is whether road are to be granted depreciation at the rate of plant or building. While the assessee is seeking depreciation as applicable to plants, revenue authorities have allowed depreication as applicable to buiding. We discuss below the case laws cited.
6.4 In the case of Indore Municipal Corporation vs. C.I.T. 247 ITR 803 5 ITA NO. 1426/Del/2011 (SC), it was held that the expenditure incurred by the assessee towards construction of the metal roads on trenching grounds was not a revenue expenditure. It was further held that the roads could not be treated building, as there was no other construction except the roads. It cannot, therefore, be said that the roads by themselves would constitute buildings and assessee was not entitled to depreciation on the cost of the construction of the roads.
6.5 In the case of C.I.T. vs. Coromandel Fertilizers Limited 156 ITR 283, the Hon'ble High Court has held that the Roads are actual adjuncts to the assessee and are within the factory premises. The transport of very essential raw material for the manufacture of the fertilisers which is the main business of the assessee company, could not be carried on at all without these roads. They are not roads used by others but constitute part of the fertiliser factory. They are as much necessary for the purpose of the assessee's business as the factory building and machinery itself. The roads constituted plant and assessee was entitled to depreciation and development rebate on the cost of the roads.
6.6 In the case of Commissioner Of Income Tax v. Gwalior Rayon Silk Manufacturing Co. Limited, the Hon'ble Apex Court has held that roads laid within the factory premises as links or providing approach to the buildings are necessary adjuncts to the factory buildings to carry on the business activity of the assessee and would be building within the meaning of section 32 of the Act, 1961. The depreciation is admissible on the capital expenditure incurred thereon as building.
6.7 In the case of Maharasthra State Road Development Corpn. Ltd. vs. ACIT, the tribunal had held that if the functional test for a plant 6 ITA NO. 1426/Del/2011 enunciated by the Apex Court and jurisdictional Court in their decisions referred to supra is applied to the facts of the present case, we have no hesitation in holding that roads, flyovers, bridges etc., constructed and owned by the assessee and utilized in its business of providing infrastructure is the tool of its trade and an essential adjunct to its business and not merely a setting in which the business is carried on and therefore would constitute plant and will be entitled to depreciation at 25%.
6.8 In the case of C.I.T. vs. Mahindra Sintered Products 201 ITR 605 (Bom), the Hon'ble Mumbai High Court has held that the roads construction within the factory premises are to be considered as building for the purpose of depreciation on the road through the factory premises should be allowed as a building.
6.9 In the case of C.I.T. vs. Gujrat State Fertilizers Co. Ltd. (1993) 203 ITR 526 (Guj). The Hon'ble High Court had held that the roads laid within the factory premises as links or providing approach to the buildings are necessary adjuncts to the factory buildings to carry on the business activity of the assessee and would be building within the meaning of section 32 of the Act, 1961. It was held that road within the factory premises were entitled to depreciation.
6.10 In the case of Tamil Nadu Development Co. Ltd. vs. ACIT 120 ITD 20, the Chennai Tribunal had held that the assessee had constructed only a road. After the assessment year 1988-89, all the appendices, prescribing the table of rates of depreciation had the note that building would include road. Therefore, the assessee would become entitled to depreciation on the road in the category of building.
7ITA NO. 1426/Del/2011 6.11 From the above case laws we find that the majory view including that of Hon'ble Apex Court in C.I.T. vs. Gwalior Rayond Silk Manufacturing Co. Ltd., is that roads are to be treated as building and accordingly the depreciation is to be allowed. We further note that after the assessment year 1988-89, all the appendices prescribing the table or rates of depreciation had the note that building would include road.
6.12 In the background of the aforesaid discussion and precedents we do not find any infirmity in the order of the Ld. C.I.T.(A). Accordingly, we uphold the same.
7. Apropos issue of audit fee On this issue the AO noted that a sum of ` 86224/- was debited for audit fee on which TDS was not deducted. Hence the claim was disallowed u/s. 40(a).
8. Before the Ld. CIT(A) assessee submitted that the payment of audit fee of ` 86224/- was neither accounted for nor actually made during the year under consideration and only a provision for the purpose of internal and tax audit to be conducted in the next F.Y. was made.
8.1 Considering the above Ld. CIT(A) observed that the claim of assessee company was not admissible during the year under consideration because neither any services with reference to audit were rendered to the assessee company, nor any liability for payment of fee of ` 86224/- had been incurred during the F.Y. relevant to the A.Y. under consideration. Ld. CIT(A) further observed that it is an admitted fact that the provision of ` 86224/- was with reference to 8 ITA NO. 1426/Del/2011 audit to be conducted only in the next F.Y. and necessary deduction of TDS was made at the time of payment of fee to the auditors only in next F.Y. Ld. CIT(A) concluded that neither the expenditure pertained to the A.Y. under consideration nor any liability for the same was incurred during the F.Y. relevant to the A.Y. under consideration. Hence, he confirmed the disallowances made by the AO.
9. Against the above order the assessee is in appeal before us.
10. We have heard the rival contentions in light of the material produced and precedents relied upon. We find that Ld. CIT(A) has given a finding that neither the expenditure pertained to A.Y. under consideration nor any liability for the same was incurred during the F.Y. relevant to A.Y. under consideration. Under the circumstances, we find that the Ld. CIT(A) has taken a correct decision based on the facts of the case. Accordingly, we uphold the order of the Ld. CIT(A).
11. In the result, the appeal filed by the assessee is dismissed.
Order pronounced in the open court on 15/6/2012.
Sd/- Sd/-
[A.D. JAIN]
JAIN] [SHAMIM YAHYA]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Date 15/6/2012
"SRBHATNAGAR"
Copy forwarded to: -
1. Appellant 2. Respondent 3. CIT 4. CIT (A)
5. DR, ITAT
TRUE COPY
By Order,
Assistant Registrar,
ITAT, Delhi Benches
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