2019 (7) TMI 1956 - AT - Income Tax

Disallowance of claim of expenditure on repairs and maintenance of building, plant and machinery - As per AO expenditure incurred on Office building and Hotel is capital in nature, since the same would not qualify as current repairs within the meaning of sec. 30/31 of the Income-tax Act - HELD THAT - Having heard the rival contentions, we are of the view that this issue requires fresh examination at the end of the AO, since the nature of work carried on by the assessee would determine the character of the expenditure. If the expenditure has resulted in creations of new asset, undisputedly the same shall be treated as capital expenditure. On the contrary, if the expenditure has been incurred to maintain/replace an existing asset, then the same may be treated as revenue expenditure. We notice that the assessee has furnished the details of expenditure, but did not furnish the details of nature of expenditure, which shall determine the character of expenditure. Accordingly, as stated earlier, this issue requires to be examined at the end of AO. Accordingly, we set aside the order passed by ld CIT(A) on this issue and restore the same to the file of the AO. Since the Revenue has not challenged the decision rendered by the ld CIT(A), the relief granted by the first appellate authority shall remain intact. Admission of additional claim - Setting of loss suffered in passenger service fee/service component against the business income - HELD THAT - We noticed that the claim of the assessee has not been examined by the AO, since the said claim was made for the first time before the ld CIT(A) by the assessee. Though the decision rendered by Hon ble Supreme Court in the case of Goetze India Ltd. 2006 (3) TMI 75 - SUPREME COURT stated that the additional claim can be made by filing a revised return only, yet the Hon ble Supreme Court has made it clear that the same will not impinge upon the power of the Tribunal to admit additional claims. Accordingly, we admit the claim of the assessee. As AR submitted that, by applying the same analogy, the assessee may not be entitled for deduction of loss suffered under this head, but sought an opportunity to explain its stand before AO. Since this issue has not been examined by the AO, we deem it proper to restore it to the file of the AO for examining it afresh. Accordingly, we set aside the order passed by ld CIT(A) on this issue and restore the same to the file of the AO. Disallowance of Community development expenses - As submitted that these expenses were incurred on community development of nearby villages around airport area, which needs to be developed for the purpose of development of Airport business. Accordingly it was claimed that the above said expenditure was allowable u/s 37(1) - HELD THAT - There is no dispute that this expenditure has been incurred under the head corporate social responsibility . However, we noticed from the decisions relied on by the assessee to support its claim that the Hon ble High Court has appreciated the connection between the expenditure and the business use, i.e., those assessees were able to demonstrate the connection between the expenditure incurred and its use for the business of the assessee. In the instant case, though the assessee has furnished details of expenditure, it has not demonstrated the connection between the expenditure and the business advantage to the assessee. Further, as stated earlier, the nature of payment as well as the nature of expenditure incurred by GMR Varalaskhmi Foundation require examination. In the interest of natural justice, the assessee may be provided with one more opportunity to explain its case before the AO. Accordingly, we set aside the order passed by the CIT(A) on this issue and restore the same to the file of the AO for examining this issue afresh in the light of the decision rendered by Hon ble Karnataka High Court 2013 (7) TMI 451 - KARNATAKA HIGH COURT Disallowance of payment made towards delayed deposit of service tax and VAT by treating the same as penalty in nature - HELD THAT - The issue under consideration is related to interest paid delayed payment of service tax. There is no dispute that the amount paid as service tax is allowable as deduction. Hence the decision rendered by Hon ble Supreme Court in the case of Bharath Commerce and Industries Ltd. 1998 (3) TMI 2 - SUPREME COURT will not apply to the facts of the present case. On the contrary, the claim of the assessee gets support from decision rendered in the case of Lakmandas Maturdas 1997 (12) TMI 16 - SUPREME COURT and Kaypee Mechanical India Pvt. Ltd. 2014 (4) TMI 829 - GUJARAT HIGH COURT Accordingly, we set aside the order passed by ld CIT(A) and direct the AO to delete the disallowance of interest paid on delayed remittance of service tax and VAT. Appeal filed by the assessee is treated as allowed for statistical purposes.

Summary

Issues Involved:
1. Disallowance of claim of expenditure on repairs and maintenance of building, plant, and machinery.
2. Rejection of the claim for setting off loss suffered in passenger service fee/service component against business income.
3. Disallowance of community development expenses.
4. Disallowance of payment made towards delayed deposit of service tax and VAT by treating the same as penalty in nature.

Issue-wise Detailed Analysis:

1. Disallowance of Claim of Expenditure on Repairs and Maintenance of Building, Plant, and Machinery:
The assessee claimed Rs. 29.25 crore under 'repairs and maintenance,' including Rs. 357.62 lakhs for office building and hotel repairs. The AO considered this capital expenditure, disallowing it. The CIT(A) allowed 70% as capital and 30% as revenue expenditure, confirming Rs. 2.50 crores disallowance. The Tribunal noted the need to examine the nature of the work to determine if it resulted in new assets (capital expenditure) or maintained existing assets (revenue expenditure). The issue was remanded to the AO for fresh examination, maintaining the relief granted by CIT(A).

2. Rejection of Claim for Setting off Loss Suffered in Passenger Service Fee/Service Component Against Business Income:
The assessee collected passenger service fees on behalf of the Government of India and incurred a loss of Rs. 77.18 lakhs, which was not claimed in the return. The CIT(A) dismissed the claim, citing the Supreme Court's decision in Goetze (India) Ltd., which requires additional claims to be made via revised returns. The Tribunal admitted the claim, noting the Tribunal's power to admit additional claims and remanded the issue to the AO for fresh examination.

3. Disallowance of Community Development Expenses:
The assessee claimed Rs. 326.94 lakhs for community development, with Rs. 221.34 lakhs paid to GMR Varalakshmi Foundation and the rest directly incurred. The AO disallowed the payment to the Foundation as a donation and the remaining as capital expenditure not wholly and exclusively for business purposes. The CIT(A) upheld this, considering it corporate social responsibility (CSR) expenditure, not substantiated as business expenditure. The Tribunal noted the need to examine the connection between the expenditure and business advantage, the nature of payment to the Foundation, and the details of expenditure. The issue was remanded to the AO for fresh examination.

4. Disallowance of Payment Made Towards Delayed Deposit of Service Tax and VAT by Treating the Same as Penalty in Nature:
The AO disallowed Rs. 1.44 lakhs as interest on delayed service tax and VAT deposit, treating it as a penalty, confirmed by CIT(A) based on the Supreme Court's decision in Bharat Commerce & Industries Ltd. The Tribunal differentiated this case, noting service tax is deductible, and interest on delayed payment is compensatory, not penal. The Tribunal directed the AO to delete the disallowance.

Conclusion:
The appeal was allowed for statistical purposes, with issues remanded for fresh examination and specific directions provided for the treatment of interest on delayed service tax and VAT payments. The order was pronounced in open court on 10th July 2019.