Allowability of depreciation on highway project awarded on DBOT basis

ITAT allows depreciation on highway project awarded on DBOT basis

In a recent judgment, ITAT Delhi allows depreciation on highway DBOT project rejecting the argument that assessee was not the owner of the road constructed by it and ownership of the asset is sine qua non for claiming depreciation under Section 32 of the Income Tax Act.

ABCAUS Case Law Citation:
4984 (2026) (01) abcaus.in ITAT

In the instant case, the Revenue had challenged the order passed by the CIT(A) in deleting the disallowance made on account of depreciation on highway projects.

The Assessee was a special purpose vehicle (SPV) for execution of highway project.  The company was awarded project by National Highway Authority of India (NHAI) for development of four-lane road project on Design, Build, Finance, Operate and Transfer (DBOT) basis.  

According to the terms of the Concessionare Agreement, fixed annuity was to be received by the assessee company on a half yearly basis after completion of the project.

The total cost of project incurred by the company including civil, engineering, administrative expenses and finance as incurred by the assessee company was shown in Note of the balance sheet.  The same was capitalized as intangible assets in the books of accounts.

The Assessee company filed its return of income for the relevant assessment year and claimed depreciation on the return on value of the expenditure incurred on the development of the highway project.

The assessment was completed under Section 143(3) of the Act by disallowing the depreciation claim on the highway project expenditure and instead amortization was allowed by referring to CBDT Circular 9 /2014 thereby resulting in net addition to the returned income. 

The Tribunal observed that the case of the revenue was that the assessee was not entitled to depreciation on highway project since it was not the owner of the road constructed by it and ownership of the asset is the sine qua non for claiming depreciation under Section 32 of the Act. 

The Tribunal further noted that the AO relying on the CBDT Circular No. 9 / 2014 allowed amortization over the life of annuity.  The AO also relied on the decision of the Hon’ble Supreme Court which was also cited in the said Circular.

The Tribunal further noted that the CITA by following the order passed by the Tribunal in Assessee’s own case for earlier two assessment years deleted the disallowance made on depreciation on highway projects. 

The Tribunal noted that the issue in dispute was squarely covered by the Special Bench’s decision of Hyderabad Tribunal and also by the decision of the Co-ordinate Bench of the Tribunal in Assessee’s own case.

The Tribunal observed that the Assessee during the year had claimed depreciation on Highway projects on the opening WDV and that the depreciation had been duly allowed by this Tribunal in earlier two assessment years which Tribunal order had been followed by the CITA while granting relief to the Assessee.

The Tribunal therefore opined that there was no infirmity in the order of the CITA. Accordingly the grounds raised by the revenue were dismissed. 

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