construction cost amortization of infrastructure facility under BOT project is allowable expenditure

In a recent judgment, ITAT Mumbai has held that as per CBDT circular no. 09 of 2014, construction cost on development of infrastructure facility of roads/highways under BOT project may be amortized and claimed as income tax business expenditure

Case Details:
ITA No.644/M/2013  Assessment Year: 2009-10
M/s. Koratalaiyar Bridge Pvt. Ltd. vs. JCIT
Date of Order/Judgment: 31/03/2016

Brief Facts of the Case:
The assessee had built a bridge on Buildings Operate Transfer (BOT) basis for the government. As per the contract, the assessee was entitled to collect toll, maintain and operate the bridge for 9 years 11 months and 16 days. The said period expired on 11th January 2009 and the bridge was handed over to NHAI. Accordingly, during the a. year 2009-10, the assessee relying on CBDT circular No. 9/2014 written off the opening Written Down Value (WDV) of the river bridge as depreciation allowable which was at Rs.23,96,51,678/- as on 01/04/2008. However, The AO rejected the explanation of the assessee observing that depreciation was given on block of assets and if the entire block ceased to exist, then no depreciation can be allowed and as per the provisions of section 50, the entire profit or loss shall be treated as short term capital gain/short term capital loss. The AO, therefore, disallowed the depreciation and treated the loss as short term capital loss.

CIT (A) also confirmed the addition . The assessee also contended that the income of the assessee from the project otherwise was exempt under section 80IA(4) of the Income Tax Act but CIT(A) did not consider the claim on the ground that the assessee inadvertently had not claimed the deduction  in the return of the income.

Excerpts from ITAT Judgment:

…. the assessee has invited our attention to the circular No.9 of 2014 dated 23.04.14 in relation to ‘clarification regarding treatment of expenditure incurred for development of roads/highways in BOT agreements under the Income Tax Act, 1961’…….paras 5 to 7 of the said circular which for the sake of convenience are reproduced as under:

“5. In view of above, Central Board of Direct Taxes, in exercise of the powers conferred under section 119 of the Act hereby clarifies that the cost of construction on development of infrastructure facility of roads/highways under BOT projects may be amortized and claimed as allowable business expenditure under the Act.

6. The amortization allowable may be computed at the rate which ensures that the whole of the cost incurred in creation of infrastructural facility of road/highway is amortized evenly over the period of concessionaire agreement after excluding the time take for creation of such facility.

7. In the case where an assessee has claimed any deduction out of initial cost of development of infrastructure facility of roads/highways under BOT projects in earlier year, the total deduction so claimed for the Assessment Years prior to the Assessment Year under consideration maybe deducted from the initial cost of infrastructure facility of roads /highways and the cost “so reduced” shall be amortized equally over the remaining period of toll concessionaire agreement.”

In view of the above parars of the circular, the assessee is entitled to the amortization of the remaining cost of the infrastructure facility at the end of the term as business expenditure. We accordingly direct the AO to decide the claim of the assessee in the light of the above circular.

The assessee in the alternative has contended that the income of the assessee from the project otherwise is exempt under section 80IA(4) of the Income Tax Act. He, in this respect, has relied on the decision of the Ld. CIT(A) in the own case of the assessee for A.Y. 2007-08 dated 21.05.10. For the year under consideration, the Ld. CIT(A) has refused to consider the above claim of the assessee on the ground that the assessee inadvertently has failed to make this claim in the return of the income for the year under consideration. It has been time and again held by the various courts of law that the AO should not take advantage of assessee’s ignorance of law. If the assessee is otherwise eligible for a claim and the assessee under a mistake or otherwise has failed to make a claim, the taxing authorities should assist him and only legitimate taxes due should be collected. Considering the above proposition of law, we direct the AO to consider the alternative claim of the assessee also and if the assessee is found eligible, then to give him the benefit as per the provisions of law irrespective of the fact that the assessee could not claim the same in the return of the income.

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