PR COMMISSIONER OF INCOME TAX 1 THANEversusECA INFRASTRUCTURE INDIA PVT LTD AY 2015-16

                                                                                                 44-ITXA-251-24.DOC



         Urmila Ingale
                                     IN THE HIGH COURT OF JUDICATURE AT BOMBAY
          Digitally signed
          by URMILA
                                         ORDINARY ORIGINAL CIVIL JURISDICTION
URMILA PRAMOD
       INGALE
PRAMOD Date:
INGALE 2026.08.18
       11:00:42
          +0530
                                             INCOME TAX APPEAL NO. 251 OF 2024

                              Pr Commissioner of Income Tax 1 Thane                       … Appellant
                                              Versus
                              ECA Infrastructure India Pvt Ltd                            …Respondent



                              Mr.Akhileshwar Sharma, for the Appellant.
                              Mr.M. Subramanian a/w Mr. V.S. Hadade, for the Respondent.

                                                   _______________________
                                                 CORAM:      G. S. KULKARNI &
                                                             AARTI A. SATHE, JJ.
                                                 DATED:      31st JULY, 2026
                                                    _______________________

                              ORAL JUDGMENT (PER G. S. KULKARNI, J.)

                             1.   This Appeal under Section 260A of the Income Tax Act, 1961 (“the
                             Act”, for short) challenges an order dated 8 th February 2023 passed by the
                             Income Tax Appellate Tribunal Bench at Mumbai (“Tribunal”, for short)
                             thereby dismissing the Revenue’s Appeal which was filed against an order
                             dated 23rd March 2022 passed by the learned Commissioner of Income-tax
                             (Appeals), Pune. The assessment year in question is Assessment Year 2015-
                             16. The Appellant/Revenue in assailing the order passed by the Tribunal has
                             raised the following substantial question of law.

                                      “Whether on the facts and in the circumstances of the case and in law, the
                                      Tribunal was justified in dismissing the appeal of the Revenue, without
                                      any finding on the subject matter, relying on the decision in the case of
                                      M/s Mokama Munger Highway Ltd. (ITA No. 1729, 2145 and 2146 0f
                                      2018 dated 03.07.2019) wherein the issue was remitted back to the A.O.,
                                      therefore vitiating the finding as perverse?”


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2.    Briefly the facts are that the Respondent-Assessee is a special purpose
vehicle formed to engage in the business of road construction on Build
Operate Transfer (BOT) basis and collection of toll. For the assessment year
in question, the Assessee filed its return of income on 29 th September 2015
declaring loss of Rs.4,48,91,467/- in the books as maintained under the
Companies Act, whereas the loss for the purpose of Income Tax Act is
calculated at Rs. 8,46,64,672/-.        During the assessment proceedings, the
Assessing Officer passed an assessment order under Section 143(3) of the Act
by making additions of Rs. 7,47,00,000/- on account of disallowance of
provisions for major repairs. Aggrieved by the order passed by the Assessing
Officer, the Assessee approached the CIT(Appeals) inter alia contending that
the Assessing Officer was not justified in disallowing the provisions made by
the Assessee of major repairs expenses of the said amount debited to the profit
and loss account of the relevant year and thereby adding the same to the total
income.     The Assessee contended that the disallowance of “provisions for
major repairs” amounting to Rs. 7,47,00,000/- on the ground that the said
expenditure was not actually incurred during the year, was not the correct
approach on the part of the Assessing Officer. The Assessee sought to justify
the allowability of the said expenditure inter alia on the basis of the BOT
agreement entered into with the Government of Maharashtra to build a road
on BOT basis and a period of concession of 30 years was available with the
Assessee under the said contract. The Assessee contended that the
expenditure in building the road was amortized over the period of the
concession by following the CBDT Circular No.9 of 2014. It was also the
Assessee’s case that as per the agreement, the Assessee was required to carry
out major repairs four times during the entire period of concession and the
first such repair was to be carried out after expiry of seven years i.e. during the
8th year. As the said expenditure was to be a major expenditure and the
liability of incurring such expenditure accrues over a period of seven years,
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therefore it was contended that the Assessee had made provisions in the
assessment year under consideration as well as for subsequent assessment
years.

3.       According to the Assessee, the liability to incur such expenditure had
accrued and therefore, the deduction ought to have been allowed on the basis
of provisions which were made in the books. It is also contended by the
Assessee that in the case the Government of Maharashtra was to take over the
project in between, in that case, the Assessee was required to compensate the
Government of Maharashtra corresponding to the expenses to be incurred on
major repairs to be undertaken on periodic basis. Also that the last major
repair was required to be carried on in the 30 th year of concession and if it
does not book the said expenditure on provision basis in earlier years, in that
case, the expenditure incurred in 30 th year of concession will remain
unclaimed for lifetime as there will be no business left after that year which
would not be a desirable situation as submitted by the Assessee.

4.       In such circumstances, it was contended that the Assessing Officer was
not correct in disallowing the provisions so made on the ground that Sections
36 & 37 of the Act did not allow provisions to be made for the expenses
which have not accrued to the Assessee during the relevant year and that
liability to take the major repairs has not accrued to the Assessee and/or on the
ground that there was no provision under the Income Tax Act to claim the
expenses of future years in the current year considering the same as a
contingent liability.

5.       On perusal of the record it appears that there was substantial material
which was placed before the Assessing Officer, as also before the
CIT(Appeals), more importantly, on the test which needs to be recognized in
law with regard to the present obligation to incur future expenditure on

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reliable estimates.   Such materials formed part of the record before the
authorities below. The Assessee relied on the decision of the Tribunal Bench
(Hyderabad Bench) in the case of M/s.Mokama Munger Highway Limited Vs.
DCIT (ITA No. 1729, 2145 and 2146 of 2018) and also referred to the
decision of the Supreme Court in the case of Bharat Earth Movers Vs. CIT,
245 ITR 428 (SC) and the decision in the case of Rotork Controls India Pvt.
Ltd. Vs. CIT, Civil Appeal Nos. 3506-3510 of 2009 (SC).

6.   Considering the aforesaid principles of law and having due regard to the
nature of the agreement as entered into by the Assessee with the Government
of Maharashtra, the CIT(Appeals) held that the Assessee had a present
obligation to incur an expenditure and if a reliable estimate can be made of
the amount required to discharge the said obligation and in that situation,
provisions can be made and such provision shall be allowed as a deduction,
while computing the taxable income. In making such observations, the CIT
(Appeals) referred to Article-17 of the Concession Agreement entered
between the Assessee and Government of Maharashtra which clearly
suggested that the Assessee was under an obligation to undertake major
maintenance of the road.     Also a copy of the maintenance manual for the
said project was examined and it suggested that the Assessee was required to
put in place and maintain adequate systems and procedures for the trouble
free running of the said project and for this, it was required to undertake
regular preventive maintenance, routine maintenance as well as major
maintenance to be undertaken as per the guidelines issued by Indian Roads
Congress. By examining such agreement, the CIT (Appeals) also observed
that the road, the subject matter of the contract was required to be majorly
overhauled every 8th year. Further referring to Article-37 of the Concession
Agreement which provided that in the event of breach of the maintenance and
safety requirements, the agreement shall be terminated, the CIT (Appeals)

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reflected on such liability being fastened up on the Assessee to make
provisions for the maintenance of the road.       Also referring to Article-38 of
the agreement, it was observed that in case of termination, the Assessee was
required to cure all project assets including the road and other structures, of all
defects and deficiencies, so that, the project highway is compliant with the
maintenance requirements. Such maintenance requirements were required to
be cured by the Assessee at its own cost. More particularly, the Article-39 of
the Concession Agreement was referred to which provided that an
independent engineer shall evaluate such maintenance requirements and in
case, the Assessee fails to cure the defects, the corresponding amount shall be
retained by the Government. Thus considering the aforesaid clear position in
law and by recording the following findings, the CIT(Appeals) allowed the
Assessee’s appeal.

     “ 8. The second issue to be decided is as to whether the estimate made by the
     assessee is reasonable and on a scientific basis. The appellant has submitted
     that a copy of said working was submitted to the Assessing Officer and the
     Assessing Officer has not pointed out any error in the working of the
     appellant. A copy of this working has also been filed before me. As per this
     working, the appellant has worked out the quantity of bitumen, concrete,
     thermoplastic compound, etc., on the basis of length, breadth and depth of the
     road. After working out the quantity, the estimate has been arrived at by the
     appellant. The appellant has estimated the cost of major repairs at Rs.
     22,26,47, 178/-. The appellant has also filed a chart containing the year wise
     details of provisions made and utilized. The appellant also explained that as
     per the provisions of lndAS accounting principles, reworking of provisions was
     done in A.Y. 2018-19. The appellant has also submitted that the major repair
     was carried in F.Y. 2019-20 and FY 2020-21 and the whole of provisions made
     were utilized on major repairs. The opening balance of provisions as on
     01/04/2019 was Rs. 16,19,64,943/- and against this opening balance of
     provisions for major repairs, a total amount of Rs. 17,89,48,545/- was incurred
     in F.Y. 2019-20 (A.Y. 2020-21). The corresponding chart has been reproduced
     earlier in this order. These facts suggests that the estimate made by the
     appellant is reliable. The appellant has also submitted that similar provisions
     were made in the subsequent assessment years as well and after carrying out
     the scrutiny u/s 143(3) r.w.s. 153A for A.Y. 2016-17, 2017-18 and u/s 143(3)
     for AY 2018-19, no disallowance of provisions for 'major repairs' was made by
     the Assessing Officer. Considering the totality of facts, working of estimate

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     submitted by the appellant and the quantum of actual expenditure incurred by
     the appellant on major repairs in subsequent financial years, I am of the
     opinion that the estimates made by the appellant are reasonable and on a
     scientific basis.”


7.       The Tribunal has held that if a business liability has definitely arisen
in the accounting year, the deduction should be allowed although the liability
may have to be quantified and discharged at a future date. However, in
permitting such course of action, it was observed that what is required to be
ascertained is as to whether, incurring of such liability was certain and whether
the liability was capable of being estimated with reasonable certainty, although
the actual quantification may not be possible, and if such requirements were
satisfied, such liability need not be treated to be any contingent liability and
that the liability will be a liability in praesenti however to be discharged at a
future date. Also by referring to the decision in the Deputy Commissioner
Vs. Suzer India Limited Pune ITA No. 722/PUN/2016, it was observed to be
a settled principle that in any case where estimation is done based on scientific
method and calculated properly, the provision made for warranty in respect of
goods should be allowed under Section 37(1) of the Act.

8.   The Tribunal has accepted the findings of the CIT (Appeals). We have
perused the impugned order passed by the Tribunal. The Tribunal has duly
taken into consideration the decision of the Tribunal, Hyderabad Bench in
the case of M/s.Mokama Munger Highway Limited (supra), the decision
referred therein in case of Bharat Earth Movers (supra) and in case of Rotork
Controls India Limited (supra) and other decisions and accepting such clear
position in law, has recorded a finding that in the case of the Assessee being a
special purpose vehicle for road construction on Build, Operate and Transfer
basis and collection of tolls, the Assessee was under an obligation to incur the
expenditure for re-laying the whole road at the end of the specific period,
more particularly, after 8 years. It was hence observed that there was a direct
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 link with the toll collection and the expenditure to be incurred as per the
 agreement by the Assessee for which the provision had been made.
 Considering the observations as made in the M/s. Mokama Munger Highway
 Ltd.,(supra) and accepting the case of the Assessee as accepted by the
 CIT(Appeals), the Tribunal did not find any reason to interfere with the order
 passed by the CIT(Appeals).

 9.    Mr. Sharma, learned counsel for the Revenue has reiterated the
 contentions which in fact are contentions borne out of the order passed by the
 Assessing Officer.   He would submit that the approach of the Assessing
 Officer is correct inasmuch as under the provisions in question namely
 Section 37 so far as the expenditure in question is concerned, it was required
 to be actually incurred before it could be allowed as a deduction and not
 otherwise.


10.    On the other hand, learned counsel for the Assessee submits that the
findings recorded by the CIT(Appeals) and as also accepted by the Tribunal,
were in accord with the correct interpretation of terms and conditions of the
agreement which certainly permitted the Assessee to claim the expenditure,
which was on the basis of such estimations as completely supported not only by
the terms and conditions of the contract but also by the detailed exercise of
estimation which was put forth before the Assessing Officer as also the CIT
(Appeals).


 11.   Having heard learned counsel for the parties and having perused the
 record, we are in complete agreement with the findings recorded by the
 CIT(Appeals) and as confirmed by the Tribunal. We find that considering the
 nature of the contract i.e. the Concession Agreement entered into by the
 Assessee, which was a Special Purpose Vehicle, with the Government of


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Maharashtra, as noted hereinabove, it was on the basis of valid terms and
conditions of the contract, that the Assessee would discharge its contractual
liability in such deferred manner and for which make appropriate estimations
of maintenance expenses that would be incurred. Therefore such provision
which was made on realistic estimations and which were submitted to the
department on the basis of scientific assessment could not have been
disallowed and more particularly, considering the well settled position in law
as laid down in the several decisions which are noted by the CIT (Appeals)
and also accepted in the impugned order passed by the Tribunal.

12.   Thus, we do not find the approach of the Assessee in making such
adjustments and claiming deduction of the amounts in question on such
estimation was a permissible exercise. We accordingly find that no substantial
question of law that arises for consideration in this Appeal.


13.   The Appeal is accordingly rejected. No costs.



(AARTI A. SATHE, J.)                                (G. S. KULKARNI , J.)




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