Baleshwar Kharagpur Expressway Limited Vs PCIT (ITAT Mumbai)
Toll Road Belongs to NHAI, but Who Owns the Right to Collect Toll? ITAT Quashes Section 263 Revision
Summary: The National Highways Authority of India owned the highway. The company that built and operated it under a concession agreement claimed depreciation on something different: its 24-year right to operate the project and collect toll. The Assessing Officer examined that claim in reassessment and accepted it. The Principal Commissioner then invoked section 263, holding that the company should receive amortisation of its project cost instead of depreciation.
The Mumbai Tribunal quashed the revision. The reassessment had been opened for the very purpose of examining the depreciation claim, and the Assessing Officer had considered it before taking a view. The Tribunal also held that the concession gave the company a licence and a toll-collection right capable of being treated as an intangible asset under section 32(1)(ii).
How the Depreciation Dispute Arose
Baleshwar Kharagpur Expressway Ltd. was a special purpose vehicle promoted for infrastructure development. Under a concession agreement dated 24 March 2012, it undertook work on the Kharagpur–Baleshwar highway, including construction, strengthening, operation and maintenance. In return, NHAI granted it the right to operate the project and collect toll for 24 years, subject to the agreement’s terms.
For AY 2018–19, the company claimed ₹116,57,41,222 as depreciation on the right arising from the concession, treating it as a licence or business or commercial right under section 32(1)(ii). Information suggesting excess depreciation on intangible assets led the department to reopen its assessment.
During reassessment, the Assessing Officer called for details of the claim. He then accepted the returned income in an order dated 23 March 2024, referring to judicial decisions in support of his conclusion that no adverse inference was required. The dispute before the Tribunal was whether the Principal Commissioner could revise that reassessment under section 263.
The Principal Commissioner’s Objection
The Principal Commissioner issued a show-cause notice on 6 March 2026 and passed the revision order on 23 March 2026. Her central objection was that NHAI retained ownership of the road. On that footing, she concluded that the concessionaire did not own a depreciable asset under section 32.
She also relied on CBDT Circular No. 9/2014, which addresses expenditure on roads developed under concession arrangements and its amortisation over the concession period. In her view, allowing depreciation at 25% brought forward a larger deduction in the earlier years and distorted the matching of cost with toll income. She considered the Assessing Officer’s acceptance of the claim erroneous and prejudicial to the interests of the Revenue.
The show-cause notice discussed decisions taking different positions on depreciation for BOT projects, including the jurisdictional Bombay High Court decision concerning ownership of road infrastructure and a Madras High Court decision on the claimed intangible right. The Principal Commissioner maintained that the Assessing Officer had failed to apply the correct law and make a proper enquiry. The company answered that the depreciation issue had been expressly examined in reassessment and that revision could not be used to replace the Assessing Officer’s considered view.
Reassessment Was Opened on This Exact Issue
The Tribunal first addressed the foundation for section 263 revision. This was not a case in which the depreciation claim had escaped the Assessing Officer’s attention. Alleged excess depreciation was the reason for reopening the assessment. The Assessing Officer called for relevant details and reached a conclusion after considering judicial decisions.
The Tribunal held that decisions concerning lack of enquiry or non-application of mind did not fit those facts. It reiterated that where two views are legally tenable and the Assessing Officer adopts one after examination, the Principal Commissioner cannot invoke section 263 merely to substitute another view.
The Tribunal also noted that, for AY 2016–17, section 263 proceedings against the same assessee on the identical depreciation issue had ultimately been dropped because the Principal Commissioner found the assessment order neither erroneous nor prejudicial to the Revenue. That earlier outcome was an additional circumstance noted in the order; the present decision centred on the enquiry and view taken in the reassessment under appeal.
The Road and the Licence Were Different Assets
The Tribunal then examined the Principal Commissioner’s ownership reasoning. Her conclusion rested on the company’s lack of ownership of the physical road. The company’s claim, however, concerned the licence to execute, operate and maintain the project and collect toll during the concession period.
Section 32(1)(ii) includes licences among the specified intangible assets. On examining the concession, the Tribunal found that the company had been granted a licence and toll-collection right in return for its investment in the project. It held that this right fell within section 32(1)(ii) and was eligible for depreciation at the applicable rate.
The Tribunal referred to a later Mumbai coordinate bench decision in Jorabat Shillong Expressway, dated 23 April 2026, which allowed depreciation on a concession right in a comparable BOT setting. It expressly identified a factual distinction: that assessee received an annuity, whereas Baleshwar Kharagpur Expressway had the right to collect toll. The Tribunal nevertheless concluded that a right to collect toll or annuity under such a concession could constitute an intangible asset.
The section 263 order was quashed, and the company’s appeal was allowed.
Author’s Comments
The central distinction in this ruling is ownership of the highway versus ownership of the contractual right claimed as the depreciable asset. The Tribunal found the Principal Commissioner’s reasoning incomplete because it answered the first question while the company’s depreciation claim raised the second.
Its section 263 finding is also significant. The Assessing Officer had reopened the case specifically to examine depreciation and had accepted the claim after enquiry. The Tribunal therefore treated the revision as an attempt to displace a considered view, rather than to correct an issue left unexamined. The order records competing judicial positions and the Revenue’s reliance on CBDT Circular No. 9/2014; its conclusion is the Mumbai Tribunal’s decision on this concession right and this reassessment record.
Cases Discussed
- CIT Vs Noida Toll Bridge Co. Ltd., (2013) 213 Taxman 333 (Allahabad High Court), ITA No. 316 of 2011 — Relied upon by the Assessing Officer while accepting the depreciation claim; the PCIT considered the decision distinguishable and noted that it preceded CBDT Circular No. 9/2014.
- Pr. CIT Vs GVK Jaipur Expressway Ltd. (Rajasthan High Court/Supreme Court), (2018) 259 Taxman 430 (Raj.); SLP dismissed — Relied upon by the Assessing Officer; the PCIT distinguished the decision on the ground that depreciation there had been allowed treating the asset as a building and that the High Court had not examined CBDT Circular No. 9/2014.
- North Karnataka Expressway Ltd Vs Commissioner of Income-tax (Bombay High Court) (2014) — Relied upon by the PCIT for the proposition that a BOT concessionaire that does not own the road infrastructure cannot claim depreciation on the physical road.
- L&T Infrastructure Development Projects Ltd. and LTIDPL INDVIT Services Ltd. (Madras High Court) (2023) — Relied upon by the PCIT for the view that the right to operate a toll road under a BOT arrangement did not constitute an intangible asset eligible for depreciation under section 32(1)(ii).
- Hazaribagh Ranchi Expressway Ltd., ITA Nos. 3787/Mum/2023 and 3788/Mum/2023 (ITAT Mumbai) (2024) — Relied upon in the PCIT’s show-cause reasoning for the view that depreciation on toll roads was not allowable either as a tangible or intangible asset.
- Diwantham Tollway Pvt Ltd., ITA No. 3711/Mum/2025, order dated 13/10/2025 (ITAT Mumbai) — Relied upon by the PCIT in support of revision under section 263 and denial of depreciation on road infrastructure/intangible assets.
- Progressive Constructions Limited Vs Assistant Commissioner of Income Tax, ITA No. 1845/Hyd./2014 and CO No. 36/Hyd./2015, dated 14/02/2017 (ITAT Hyderabad Special Bench) — Relied upon by the assessee in support of depreciation on the concession right/intangible asset.
- Vodafone India Ltd Vs Principal Commissioner of Income Tax-8, ITA No. 3327/Mum/2018, AY 2011–12 (ITAT Mumbai) — Relied upon by the assessee in support of its challenge to the section 263 revision.
- Jorabat Shillong Expressway Vs DCIT, ITA No. 1204/Mum/2026 and ITA Nos. 6010–6012/Mum/2025, order dated 23/04/2026 (ITAT Mumbai) — Later coordinate-bench decision relied upon by the Tribunal; depreciation was allowed on the concession right as an intangible asset. The Tribunal noted that the assessee there received annuity, whereas the present assessee had a right to collect toll.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The captioned appeal by the assessee is directed against order dated 23/03/2026 passed by the Ld. Principal Commissioner of Income Tax, Mumbai-6 (in short, PCIT) under section 263 of the Income-tax Act, 1961 (in short, “the Act”) for Assessment Year 2018-19.
2. The grounds of appeal are as under:-
i. “On the facts and circumstances of the case and in law, the impugned order passed by the Learned Principal Commissioner of Income Tax-6, Mumbai (“Learned Pr. CIT”) under section 263 of the Act, setting aside the assessment order dated 23 March 2024 passed under section 147 read with section 144B of the Act as being erroneous and prejudicial to the interests of the revenue, is bad in law, without jurisdiction and liable to be quashed.
The Appellant prays that the order dated 23 March 2026 passed under section 263 of the Act be struck down as invalid, null and void ab initio and the reassessment order of the Assessing Officer be restored.
ii. Without Prejudice to Ground No. 1 above, on the facts and circumstances of the case and in law, the Learned Pr. CIT erred in holding that the reassessment order dated 23 March 2024 was erroneous and prejudicial to the interests of revenue on the issue of depreciation on the toll road treated as an intangible asset, even though the said issue was the sole basis for reopening and had been specifically examined and scrutinized by the Assessing Officer during the reassessment proceedings under section 147 of the Act.
iii. The Appellant prays that, since adequate enquiries were made during the reassessment proceedings, the impugned order dated 23 March 2026 passed under section 263 of the Act be struck down as invalid, null and void ab initio and the reassessment order dated 23 March 2024 be restored.
iv. The Appellant craves leave to add, alter, supplement, amend, vary, withdraw, and/or otherwise modify the grounds of appeal mentioned herein above at or before the time of hearing.”
3. The facts of the case are that for the year under consideration the assessee company had filed its original return of income under section 139(1) of the Act on 31/10/2018, declaring a total loss of Rs.165,62,93,238/- and claiming a refund of Rs.13,26,920/-. Thereafter, on the basis of information available with the Department that the assessee had claimed excess depreciation of Rs. 83,13,65,000/- on intangible assets, the case was reopened under section 147 of the Act and notice under section 148 was issued and served on the assessee.
3.1 It transpires from records that the assessee company was incorporated as a Special Purpose Vehicle (SPV) promoted by IL&FS Transportation Networks Limited for the purpose of undertaking infrastructure development projects. The assessee entered into a Concession Agreement, dated 24/03/2012, with the National Highways Authority of India (NHAI) for development of a highway project on a Build, Operate and Transfer (“BOT”) basis. In terms of the said Concession Agreement, the assessee was entrusted with responsibility for construction of new bridges/structures and repairing/strengthening of the existing four-lane highway from Kharagpur to Baleshwar, along with the operation and maintenance of the project highway. Pursuant to the terms of this agreement, NHAI granted the assessee an exclusive right, license and authority to design, construct, operate and maintain the project highway for a concession period of 24 years, subject to the terms and conditions stipulated therein. The cost of construction of the project facility was capitalised in the books of accounts of the assessee and treated as a fixed asset. The assessee claimed depreciation u/s 32(1)(ii) of the Act on the “right to set up infrastructure facility and collect toll thereon,” being in the nature of license or commercial rights which, according to the assessee, are intangible assets in terms of the aforesaid section. In this backdrop, the company claimed depreciation of Rs. 116,57,41,222/-on the project highway/road infrastructure, treating the same as an intangible asset, being the right to collect toll under the concession agreement.
3.2 In the course of reassessment proceedings, the Ld. Assessing Officer (in short, AO) called for relevant details to examine the depreciation as above but, in the end, accepted the return income of the assessee in view of judicial pronouncements in three cases which are mentioned in his order. However, on 06/03/2026, a notice under section 263 of the Act was again issued to the assessee, providing it with an opportunity to show cause why an order setting aside the reassessment order and directing a fresh assessment should not be passed in its case. Relevant excerpt from the notice u/s 263 is reproduced hereunder for ready reference:-
“1. You had filed return of income for A.Y.2018-19 on 31.10.2018 declaring total loss at Rs. 165,62,93,238. Subsequently, assessment proceedings u/s 147 rws 144B of the Income tax act, 1961 were completed on 23.03.2024 accepting returned income of the assessee.
2. On perusal of assessment order u/s 147 rws 144B of the Act passed on 23.03.2024 it is observed that the order is erroneous and prejudicial to the interest of revenue for the following reasons:
2.1 On verification of the records, it is seen that assessee company had entered into a Concession Agreement with the National Highways Authority of India (NHAI) by which NHAI granted the assessee an exclusive right, licence and authority to design, construct, operate and maintain the project highway and to collect toll from users of the road. The concession period granted was for 24 years. The road project was “put to use” on 26 December 2015 and accordingly in FY 2015-16, the assessee capitalized the cost incurred for construction of the toll road project and treated it in the nature of a ‘license’ or ‘business’ or ‘commercial rights’ and regarded it as an ‘intangible asset’ in terms of the provision of Section 32(1)(ii) of the Act and started claiming depreciation on it starting from FY 2015-16. During FY 2017-18 (AY 2018-19), it has claimed depreciation @25%on the said intangible asset amounting to Rs.116,57,41,222 on the opening WDV of 466,29,64,887.
2.2 On perusal of assessment records, it is seen that the AO has drawn no adverse inference on the issue by relying on following three judicial decisions:
a. The Allahabad High Court in the case of CIT Vs Noida Toll Bridge Co. Ltd., (2013) 213 Taxman 333 (All) [ITA NO.316 of 2011]
b. The Rajasthan High Court in the case of Pr. CIT v. GVK Jaipur Expressway Ltd (2018) 259 Taxman 430 (Raj.)(HC)
c. The Hon. Supreme Court in SLP Diary No. 32340/2018 in case of Pr. CIT v. GVK Jaipur Expressway Ltd [2018] 259 Taxman 429 (SC) [05-10-2018]
2.3 However, on further scrutiny of records, it appears that the Assessing Officer has erred in allowing the claim of the assessee for the reasons discussed below:
(1) Absence of Ownership of the asset
Depreciation under Section 32 is allowable only in respect of assets owned, wholly or partly, by the assessee. In the instant case, the assessee neither owns a tangible asset nor acquires ownership of any independent intangible asset. In the instant case, the assessee does not own the project or infrastructure created thereon and the ownership remains with NHAI. It is a Build Operate Transfer (BOT) project wherein the assessee does the construction, operates the project, collects toll from users and transfers the entire project to NHAI after a period of 24 years. The assessee therefore acts merely as the concessionaire and not the owner.
(II) Binding CBDT Circular No. 9/2014 dated 23.04.2014 governing BOT/Toll Road Projects
The tax treatment of expenditure incurred under BOT/BOOT/ Toll Road concession agreements has been specifically clarified by CBDT Circular No. 9/2014 dated 23.04.2014.
The Circular categorically provides that:
a. The concessionaire does not own the toll road, as ownership vests with the Government/statutory authority (NHAI).
b. The expenditure incurred on construction of the road cannot be treated as a depreciable asset under section 32.
c. The cost incurred is to be amortized evenly over the concession period in proportion to toll revenue / period of concession.
Since CBDT Circulars issued under section 119 are binding on the Assessing Officer, the AO was duty-bound to follow the said Circular.
(III) The assessee’s argument that the Circular applies only to revenue expenditure is misconceived, as:
a. The Circular explicitly deals with capital cost of construction of roads.
b. It prescribes aspecial mechanism for allowance of such cost.
c. The nature of expenditure as capital does not entitle the assessee to depreciation contrary to the Circular
(IV) Amortization reflects the true nature of expenditure and income matching
The expenditure incurred by the assessee is essentially in the nature of deferred revenue expenditure, incurred for earning toll income over the concession period.
Allowing depreciation @25% results in: COM
a. Front-loading of expenses, leading to in initial years;
b. Distortion of taxable income, contrary to the matching principle.
(V) Judicial precedents relied upon by assessee and AO are distinguishable /overridden by Circular:
i. The decision of ITAT Mumbai in case of Maharashtra State Road Development Corporation Ltd. 2010relied upon by the assessee precedes the issuance of CBDT Circular No. 9/2014 and, therefore, does not take into account the legal position clarified therein. Accordingly, the said decision is not applicable to the present case.
ii. Similarly, the judgement of the Allahabad High Court in the case of CIT VS Noida Toll Bridge Co. Ltd., (2013) relied upon by the assessee was rendered prior to the issuance of CBDT Circular No. 9/2014.
iii. The assessee has also placed reliance on the judgment of the Rajasthan High Court in Pr. CIT v. GVK Jaipur Expressway Ltd. (2018), wherein the asset was treated as a “building” and depreciation was allowed. Although the Department’s SLP against the said judgment was dismissed by the Hon’ble Supreme Court, the dismissal was without examination of the merits of the depreciation issue. Further, the Rajasthan High Court did not examine the allowability of depreciation in light of CBDT Circular No. 9/2014. Moreover, the said view stands overruled by the subsequent judgment of the Madras High Court in L&T Infrastructure Development Projects Ltd. and LTIDPL INDVIT Services Ltd., discussed in the following paragraph.
(VI) The following judicial precedents are applicable to the present case:
i. The Bombay High Court in the case of North Karnataka Expressway Ltd vs Commissioner of Income-tax (2014) has categorically held that concessionaire operating under a Build-Operate-Transfer (BOT) arrangement cannot be regarded as the owner of the road infrastructure for the purposes of section 32 of the Income-tax Act. The Court held that ownership of the road continues to vest with the Government or the statutory authority, and that the concessionaire merely enjoys a limited, contractual, and time-bound right to operate, maintain, and collect toll during the concession period, which does not amount to ownership of the asset. Accordingly, depreciation on the road asset was denied. Being a judgment of the jurisdictional High Court, the said decision is binding and prevails over non-jurisdictional High Court rulings relied upon by the assessee or AO.
ii. The Department’s position stands further reinforced by the Madras High Court judgement in the case of L&T Infrastructure Development Projects Ltd and LTIDPL INDVIT Services Ltd. (2023), wherein the High Court held that the expressions “licenses” and “other business or commercial rights of similar nature” appearing in section 32(1)(ii) must be interpreted applying the principle of noscitur a sociis, in light of the accompanying terms such as know-how, patents, copyrights, trademarks, and franchises. On such interpretation, the right to operate a toll road under a BOT arrangement was held not to constitute an intangible asset eligible for depreciation. Further, the Madras High Court acknowledged the divergence of judicial opinion on this issue, noting that the Delhi High Court and Allahabad High Court had allowed depreciation by treating such assets as “tangible assets” in the nature of “buildings”, and that several Tribunal decisions had allowed depreciation by treating the right to collect toll as an “intangible asset”. However, the Court expressly rejected the aforesaid positions and held that CBDT Circular No. 9/2014 enunciates the correct legal position, whereby depreciation is not allowable, though amortization of the project cost is permissible.
iii. Consistent with the above High Court decisions, the Mumbai Bench of the ITAT, in its 2024 decision in the case of Hazaribagh Ranchi Expressway Ltd ITA no.3787/Mum/2023 and ITA no.3788/Mum./2023 has held that depreciation on toll roads is not allowable either as a tangible asset or as an intangible asset. The Tribunal held that the right to operate and collect toll does not confer ownership and does not qualify for depreciation under section 32 of the Act.
2.4 In view of the above, it is evident that the latest judicial position, both at the Jurisdictional High Court level (which was further upheld in recent Madras HC decision)and at the jurisdictional Tribunal level, uniformly supports the Department’s stand enunciated in CBDT Circular No 9 of 2014 that depreciation on toll roads or toll bridges under BOT arrangements is not admissible, whether claimed as a tangible or intangible asset. Accordingly, the excess depreciation claimed by the assessee on intangible assets to the tune of Rs.116,57,41,222/- should not have been allowed. Failure to do so has resulted in underassessment of the income to the tune of Rs.116,57,41,222/- with consequent short levy of tax of Rs.40,34,39,723/-.
3. In view of the above, it is seen that the order passed u/s 147 r.w.s. 144B of the Act on 23.03.2024 is erroneous and prejudicial to the interests of revenue and is required to be set-aside on the above issue by invoking the provisions of section 263 of the Act. Hence, it is requested to show-cause as to why the same should not be quashed/set aside for fresh adjudication after considering the facts as discussed above.
4. In this connection, you are hereby given an opportunity of being heard and your case is fixed for hearing/making submission online on or before the date mentioned above. In case of non-compliance, it will be presumed that you have no objection to the proposed revision u/s 263 of the Act, of the assessment order passed by the Assessing Officer u/s 147 r.w.s. 144B of the Act on 23.03.2024.
3.3 In response to the above, the assessee made due submissions before the PCIT stating, inter alia, that the claim of depreciation had not only been duly disclosed in the Tax Audit Report, the issue of depreciation on BOT road as an intangible asset was specifically examined by the Ld. AO during reassessment proceedings. This being so, it was the assessee’s contention that in the given circumstances Explanation 2 to section 263 cannot apply in its case. Without prejudice to the above, the assessee also made a point that since it had huge brought forward losses and unabsorbed depreciation, even if depreciation were to be disallowed and amortization allowed, the net income taxable would still be Nil and, therefore, the reassessment order cannot be regarded as prejudicial to the interest of Revenue.
3.4 The PCIT did not find the explanation of the assessee satisfactory. She noted that the AO had failed to consider CBDT Circular No. 9/2014, dated 23/04/2014, governing BOT/toll road projects. She observed that the expenditure incurred by the assessee is essentially in the nature of deferred revenue expenditure incurred for earning toll income over the concession. Allowing depreciation at the rate of 25% results in front-loading of expenses, leading to excessive losses in initial years as well as distortion of taxable income, which is contrary to the matching principle. She distinguished the judicial pronouncements cited by the Ld. AO, stating that they are not acceptable “as they fail to align with the established legal principles and the specific facts of the case.”
Referring to Explanation 2 to section 263 of the Act, the PCIT held that it is clear that AO had failed to conduct a proper inquiry into the nature of the expenditure and had incorrectly allowed the depreciation claim without examining its admissibility under the correct provisions of law. The following excerpt from the order of the Ld. PCIT sums up her view on the impugned issue:-
“8.0. It is seen that the assessee has wrongly claimed depreciation on the Toll Road as an intangible asset under section 32(1)(ii) of the Income Tax Act, 1961, at the rate of 25%. As per the provisions of the Act and the clarification provided in CBDT Circular No. 9/2014 dated 23.04.2014, the expenditure incurred on infrastructure development under a concession agreement does not result in the acquisition of an “intangible asset” eligible for depreciation. Instead, such expenditure should be treated as an allowable business deduction through amortization over the concession period.
8.1 Further, the assessee does not fulfill the ownership criteria prescribed under section 32 of the Act, as the National Highways Authority of India (NHAI) retains ownership of the asset, and the concessionaire merely holds an operating right. Various judicial precedents, including Supreme Court and High Court rulings, have upheld that BOT/TOT concessionaires are not entitled to claim depreciation on road infrastructure as an intangible asset. In the instant case, the assessee has claimed aggregate depreciation of Rs. 116,57,41,222/- on intangible road assets. Since the asset is not owned by the assessee, assessee is entitled to claim only amortization and not depreciation. The Assessing Officer has wrongly allowed claim of deduction of Rs.116,57,41,222/- in the reassessment order, leading to a substantial loss of revenue.”
She, accordingly, held the order dated 23/03/2024 to be erroneous and prejudicial to the interests of revenue, and directed that the said order be enhanced/modified within the meaning of section 263 of the Act on the issue of treatment of the road assets as intangible assets and depreciation claimed at the rate of 25%. A plethora of judicial precedents were cited to show that lack of proper enquiry/non-application of mind by the AO, resulting in an assessment prejudicial to the interests of revenue, warrants intervention by way of directions under section 263 of the Act. Reference was also made to a recent decision in the case of Diwantham Tollway Pvt Ltd ( ITA No. 3711/Mum/2025 dated 13/10/2025) in which the Mumbai Bench of ITAT upheld the revision order under section 263 wherein the PCIT had held that road infrastructure, being intangible assets, are not owned by the assessee and the concessionaire is not entitled to claim depreciation on these assets.
3.5 It is against this order that the assessee is an appeal before this Tribunal.
4. The core issue in appeal relates to disallowance of the assessee’s claim of depreciation on the intangible asset said to have been acquired by it while executing its contract with NHAI for development of a highway project on a Build, Operate and Transfer (“BOT”) basis. The concessionaire, viz. the assessee, not only constructed the highway project infusing its own funds, but it was also required to operate and maintain it over the concession period of 24 years. The Ld. CIT DR supported the order of the PCIT, arguing that since the highway project undisputedly belongs to NHAI, the assessee cannot claim depreciation on the highway as it is neither the owner of the asset nor was it used for its business purposes. It was, therefore, his contention that the assessee’s claim of depreciation by treating the right to receive toll as an intangible asset is unacceptable. Per contra, the Ld. AR for the assessee reiterated the arguments taken before the PCIT, and also submitted a Paper Book containing relevant details as well as decisions in three cases, listed hereunder, to support his contention that in identical circumstances the ITAT had allowed the assessee’s claim of depreciation:-
(i) Special Bench in case of Progressive Constructions Limited v. Assistant Commissioner of Income Tax, ITA 1845/Hyd./2014 and Co No. 36/Hyd./2015 dated 14 February 2017.
(ii) Mumbai ITAT in case of Vodafone India Ltd v. Principal Commissioner of Income Tax-8, ITA 3327/Mum/2018 for AY 2011-12
(iii) ITAT Order in case of Jorabat Shillong Expressway for AY 2017-18, 2018-2019, 2020-21, 2022-23 vide ITA No. 1204/Mum/2026, 6010/Mum/2025, 6011/Mum/2025 & 6012/Mum/2025, order dated 23rd April, 2026.
5. We have considered the rival submissions of both the parties in the light of the judicial precedents cited before us, and have also perused the material on record. We do not, in the present context, find any relevance in the case laws cited by the Ld. PCIT to show that non-application of mind or lack of proper enquiry render an assessment erroneous and prejudicial to the interests of revenue within the scope of section 263 of the Act. This is because the case itself was reopened to examine the issue on excessive claim of depreciation, and it is evident from the assessment order that the Ld. AO, after considering, inter alia, different judgments, came to a final conclusion that no adverse inference needs to be drawn against the assessee so far as its claim of depreciation is concerned.
6. Further, it is now settled law that where two views are legally tenable, and the Assessing Officer adopts one view as per his line of reasoning, it is not open to the PCIT to take recourse to the provisions of section 263 of the Act to review the assessment order, considering the same to be erroneous and prejudicial to the interests of revenue.
7. It would be pertinent to note that in respect of the same assessee for A.Y. 2016-17, proceedings initiated u/s 263 of the Act to examine this identical issue of depreciation on intangible assets, were ultimately dropped, the PCIT holding that the assessment order passed by the AO was not erroneous and hence not prejudicial to the interests of revenue.
8. In her order under section 263, the PCIT has held that since the road asset is not owned by the assessee, it can claim only amortization and not depreciation on the same. This, in our view, appears to be factually incorrect. The Concession Agreement shows that the assessee was given a license not only to execute the project but to operate and maintain it over the concession period against the right to collect toll. The assessee has treated this right to collect toll over the concession period as an intangible asset acquired by it by investing in the project. Section 32 (1)(ii) reads as under:
(ii) know-how, patents, copyrights, trade marks, licenses, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998 (not being goodwill of a business or profession.
Thus, license is one of the intangible assets on which depreciation can be claimed. The assessee, in the instant case, was undoubtedly given a license to execute the project and had the right to collect toll. Therefore, it is our considered view that the license given is an intangible asset coming within the ambit of section 32(1)(ii) of the Act.
9. As mentioned earlier, the PCIT, in her order u/s 263 of the Act, has highlighted a recent decision, dated 13/10/2025, in the case of the Divantham Tollway Pvt Ltd. (supra) in support of her contention that the AO has wrongly allowed depreciation on the impugned intangible assets. We would like to refer to a later decision, dated 23/04/2026, of the Co-ordinate Bench of ITAT, Mumbai, in Jorabat Shillong Expressway (ITA No. 1204/Mum/2026 and ITA Nos. 6010-6012/Mum/2025) where, under substantially identical circumstances, the assessee’s claim of depreciation had been allowed after taking into account various judicial rulings. The only distinguishing feature is that in the aforesaid case the assessee received annuity, in contrast to the right to collect toll, during the concession period.
10. In the backdrop of the foregoing discussion, and considering the decision as above, the conclusion that emerges is that the right granted to an assessee to collect toll/annuity during the concession period in respect of a toll road constructed on BOT basis is an intangible asset under section 32(1)(ii) of the Income-tax Act. Hence, depreciation is allowable on such asset at the specified rate.
11. In view of the above, the impugned order dated 23/03/2026 of the Ld. PCIT u/s 263 of the Act is quashed.
12. In the net result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 24/09/2026
