2020 (1) TMI 1609 - AT - Income Tax

Disallowance of leave encashment provision - AO had made disallowances by rejecting the contention of the assessee that provision of section 43B(f) had been held to be constitutionally invalid - HELD THAT - It is an admitted fact that the provision of section 43B(f) had been held to be constitutionally invalid by the Hon ble Kolkata High court in the case of Exide Industries Ltd 2007 (6) TMI 175 - CALCUTTA HIGH COURT . On the basis of said decision the assessee has claimed deduction for provision for leave encashment as if provision of section 43B(f) is not in the statute. But fact remains that subsequently the Hon ble Supreme Court has stayed operation of the decision 2008 (9) TMI 921 - SC ORDER of Hon ble Kolkata High court in the case of Excide Industries Limited (supra) vide its order dated 08/09/2008. However it has laid down certain conditions for claiming deduction for provision for leave encashment. Thus as per the interim order of the Hon ble Supreme Court the initial stay granted by the Hon ble Supreme Court gets vacated. Further in the said interim order the Hon ble Supreme court held that the assessee can claim deduction by paying tax on the amount claimed as deduction as if section 43b(f) is on statute book. However till final outcome of the decision of the Hon ble Supreme Court the revenue will not recover interest and penalty which may accrue - We set aside the issue to the file of the Ld. AO and direct him to adjudicate the issue afresh as per the final decision of the Hon ble Supreme Court in the case of Exide Industries Ltd (supra). Disallowances u/s 40(a)(ia) - non deduction of tax at source - CIT(A) after going through the details submitted by the assessee noted that provision made by the assessee had no scientific basis and more than 50% of the liability was non-existent - HELD THAT - This matter needs to be examined by the Ld. AO in light of various averments made by the assesee including reversal of excess provision in subsequent financial year and deduction of TDS on said amounts as and when payment is made to the parties. Hence we restored the issue to the file of the Ld. AO with a direction that if any disallowances is made in the year under consideration the Ld. AO shall consequently allow deductions to the assessee in the year of actual payment or reversal as a case may be. Short term capital gain from transfer of units of mutual funds invested out of idle funds of borrowings of the project division and consequent enhancement of interest income from fixed deposits under the head income from other sources - HELD THAT - It is amply clear that in order to consider whether the income earned is of revenue or capital in nature it is important to take into account whether the funds were inextricably linked to setting up of the project. If the assessee is under obligation to use interest income in prescribed manner then such income should be reduced from the cost of the project. If the income earned from the investment can be utilized for any purpose as per the total discretion of the assessee as it was in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. 1997 (7) TMI 4 - SUPREME COURT then such income would be considered as revenue in nature liable to be taxed u/s. 56 of the Act. As pointed out hereinabove funds of the assessee were inextricably connected with the project and the assessee had to credit any investment income to the TRA main income. Therefore any income arising from investment made from borrowed funds should be reduced from work-in-progress as has been held in the various judicial pronouncements referred above. We further submitted that the decisions relied upon by the CIT(A) such as Tuticorin Alkali (supra) have been duly considered and covered by the aforesaid various judgments relied upon by the assessee. Therefore the income earned by the assessee from investments made out of funds that are inextricably connected with the project should be reduced from work-in-progress. As submitted that if income arising from the investment is considered as taxable income of the assessee under the Act then the assessee should be granted deduction in respect of interest paid on borrowed funds which had been utilized in making investments giving rise to impugned income - The assessee is eligible for deduction of interest cost from the corresponding income arising out of investments made out of borrowed funds. We direct the Assessing Officer to grant such deduction while arriving at taxable income arising from such investment. This is without prejudice to the main finding that the income itself is not taxable and should go to reduce the cost of the project. We are of the considered view that short term capital gain derived from sale of units of mutual funds and interest earned from fixed deposits kept in banks out of idle funds of project is rightly credited to capital working progress account during the implementation period of the project. Hence we direct the Ld.AO to delete additions made towards short term capital gain derived from sale of units of mutual funds. We further direct the ld. AO to delete enhancement made by the ld. CIT(A) towards interest income earned from fixed deposits with banks invested out of idle funds of project. Additional ground claiming passenger service fees security component not to be in the nature of income and the same ought to have been excluded from the total income of the assessee - HELD THAT - It is an admitted fact that the Tribunal had considered an identical issue for AY 2008-09 2017 (2) TMI 640 - ITAT MUMBAI and after considering relevant facts including agreement between the assesee and the AAI and also instructions dated 19/01/2019 issued by MOCA held that PSF-SC collected by the assessee could not be characterized as income u/s 2(24) r.w.s 5 of the I.T.Act 1961 on the ground that the assessee has collected PSF exclusively for the purpose of security of the airport and also the assessee does not have any control over utilization of funds except for the stated purpose as per agreement between the parties. We further noted that although the Tribunal further observed that in case there was any violation in utilization of the funds as per the agreed terms then the Ld. AO would be at liberty to treat such misappropriation as income of the assessee. But said observations has been expunged by the Tribunal. Form the above it is very clear that the issue is fully covered in favour of the assessee by the decision of Tribunal for AY 2008-09 and as per which PSF-SC could not be characterized as income within the definition of income as defined u/s 2(24) and consequently needs to be excluded from total income of the assessee. We are of the considered view that PSF-SC collected by the assessee towards security of airport and to be utilized as per terms of agreement between the parties could not be regarded as income of the assessee and hence needs to be excluded from total income. Therefore we direct the Ld. AO to exclude PSF-SC from total income of the assessee. Appeal filed by the assessee is allowed for statistical purposes. Amount paid on account of upfront fees is in the nature of an intangible asset eligible for depreciation @25% as applicable to intangible assets - We are of the considered view that the Ld.CIT(A) was right in deleting additions made by the Ld. AO towards excess depreciation and hence we are inclined to uphold the findings of the Ld.CIT(A) and reject ground taken by the revenue. Expenditure incurred for realignment of Nallah in forecourt of proposed integrated terminal reallocation of CPWD staff and other operational expenditure are revenue expenditure. Amount paid to AAI towards retrenchment compensation is allowable as deduction u/s 37(1) Nature of expenditure - development fee collected by the assessee being treated as capital receipts by the Ld.CIT(A) instead of holding it has revenue receipts - HELD THAT - We find that a similar issue had been considered by the co-ordinate bench in assessee s own case for earlier assessment years and after considering relevant facts it was held that development fees collected from passengers could not be regarded as income of the assesee within the meaning of section 2(24) of the I.T.Act 1961. Disallowances u/s.14A r.w.s Rule 8D - facts with regard to the impugned disputes are that during the year under consideration the assessee had not earned any exempt income - HELD THAT - Admittedly the assessee had not earned any exempt income for the year under consideration. Once there is no exempt income then the question of disallowances of expenditure incurred in relation to said exempt income does not arise. Disallowances of employees contribution of ESIC u/s 36(1)(va) r.w.s. 43B - HELD THAT - It is an admitted fact that the assesee had remitted employees contribution to ESIC before filing the return of income. In fact the payments have been made within due date as per respective statute and delay is only on the part of banks in realizing the cheques. Once the payments have been made on or before due date of filing return of income then they same cannot be disallowed u/s 36(1)(va) r.w.s.43B of the I.T.Act 1961. This legal proposition is supported by the decision of Hindustan Organics Chemicals Ltd. 2014 (7) TMI 477 - BOMBAY HIGH COURT and Ghatge Patil Trasnports Ltd. 2014 (10) TMI 402 - BOMBAY HIGH COURT . Therefore by respectfully following the above two decisions we are inclined to uphold the findings of the Ld.CIT(A) and reject ground taken by the revenue. Disallowances of excess depreciation on taxiways and aprons as plant and machinery as against depreciation by treating the same as building - HELD THAT - As we have allowed the assessee depreciation @15% for A.Ys. 2009-10 2010-11 and 2011-12 also. Facts and circumstances being similar and respectfully following the order of the Tribunal in the asessee s own case which has been relied upon by the Mumbai International Airport P Ltd. 2017 (11) TMI 905 - ITAT MUMBAI we see no reason to interfere with the impugned order. We uphold the same and dismiss the ground raised by the Revenue.

Summary

Issues Involved:
1. Disallowance of leave encashment provision.
2. Disallowance under section 40(a)(ia) for non-deduction of TDS.
3. Treatment of short-term capital gains from mutual funds and interest income from fixed deposits.
4. Taxability of Passenger Service Fee - Security Component (PSF-SC).
5. Depreciation on upfront fees paid to the Airport Authority of India (AAI).
6. Treatment of various expenditures as revenue or capital.
7. Allowability of retrenchment compensation under section 37(1).
8. Treatment of Development Fee as capital or revenue receipt.
9. Disallowance under section 14A for expenditure related to exempt income.
10. Disallowance of delayed deposit of employee's contribution to ESIC.
11. Depreciation on taxiways, aprons, parking bays, and bridges.

Detailed Analysis:

1. Disallowance of Leave Encashment Provision:
The Tribunal noted that the provision of section 43B(f) had been held constitutionally invalid by the Kolkata High Court in the Exide Industries Ltd. case, but the Supreme Court stayed this decision. The Tribunal set aside the issue to the AO to decide based on the final outcome of the Supreme Court's decision in Exide Industries Ltd.

2. Disallowance Under Section 40(a)(ia) for Non-Deduction of TDS:
The Tribunal found that the assessee made provisions for expenses based on reliable estimates, and TDS was deducted when payments were made. The Tribunal directed the AO to re-examine the issue, considering the reversal of excess provisions and deduction of TDS upon payment.

3. Treatment of Short-Term Capital Gains from Mutual Funds and Interest Income from Fixed Deposits:
The Tribunal held that the gains from mutual funds and interest income, derived from project funds, should be credited to the capital work-in-progress account as they are inextricably linked with the project funds. The Tribunal directed the AO to delete the additions made towards these incomes.

4. Taxability of Passenger Service Fee - Security Component (PSF-SC):
The Tribunal ruled that PSF-SC collected for airport security should not be characterized as income of the assessee. This decision was based on the fact that the funds were collected and utilized strictly as per the agreement and regulations, and the assessee had no control over these funds.

5. Depreciation on Upfront Fees Paid to AAI:
The Tribunal upheld the CIT(A)'s decision that the upfront fees paid to AAI constituted an intangible asset eligible for depreciation at 25%, as previously determined in the assessee's own case for earlier years.

6. Treatment of Various Expenditures as Revenue or Capital:
The Tribunal confirmed that expenditures on realignment of nallahs, reallocation of CPWD staff, etc., were revenue in nature. This decision was consistent with the Tribunal's findings in the assessee's own case for earlier years.

7. Allowability of Retrenchment Compensation Under Section 37(1):
The Tribunal held that retrenchment compensation paid to AAI was allowable as a deduction under section 37(1) and not under section 35DDA, as the payment was not made directly to employees but to AAI.

8. Treatment of Development Fee as Capital or Revenue Receipt:
The Tribunal ruled that the development fee collected from passengers was a capital receipt, as it was collected under statutory provisions for specific purposes related to airport development and not as a revenue receipt.

9. Disallowance Under Section 14A for Expenditure Related to Exempt Income:
The Tribunal noted that no exempt income was earned during the year, and therefore, disallowance under section 14A was not applicable. This decision was in line with the Bombay High Court's ruling in Ballarpur Industries Ltd.

10. Disallowance of Delayed Deposit of Employee's Contribution to ESIC:
The Tribunal upheld the CIT(A)'s decision to delete the disallowance, as the contributions were deposited before the due date of filing the return of income, consistent with the Bombay High Court's decisions in Hindustan Organics Ltd. and Ghatge Patil Transports Ltd.

11. Depreciation on Taxiways, Aprons, Parking Bays, and Bridges:
The Tribunal upheld the CIT(A)'s decision to allow depreciation at 15% on taxiways, aprons, parking bays, and bridges, treating them as part of plant and machinery, based on earlier Tribunal decisions in the assessee's own case.

Conclusion:
The Tribunal's judgment addressed multiple issues, mostly in favor of the assessee, by adhering to previous decisions and legal precedents. Each issue was meticulously analyzed based on the facts and applicable laws, ensuring a comprehensive and legally sound resolution.