2022 (2) TMI 1294 - AT - Income Tax

Inclusion of profit / loss of passenger service fee (security component) managed in Fiduciary Capacity - AO had included surplus in Passenger Service Fee (Security Component) PSF(SC) as income assessable in the hands of the assessee - HELD THAT - In view of the Bangalore Bench order in assessee s own case 2019 (7) TMI 1956 - ITAT BANGALORE we direct the A.O. to consider the issue afresh. A.O. is directed to examine the judicial pronouncements relied on by the assessee and take a decision in accordance with law after affording a reasonable opportunity of being heard to the assessee. It is ordered accordingly. TDS u/s 194H - Disallowance u/s 40(a)(ia) towards amount retained by airlines while remitting the amount of Passenger Service Fees (PSF) and User Development Fees (UDF) - HELD THAT - Respectfully following the Hon ble High Court judgment in the case of Delhi International Airport (P) Ltd. 2018 (5) TMI 334 - ITAT BANGALORE we restore this issue to the files of the A.O. A.O. is directed to re-adjudicate the issue in light of proviso to section 40(a)(ia) of the Act. The A.O. shall afford a reasonable opportunity of hearing to the assessee. If it is established that the Airline Operators have offered receipt of commission as income in the respective assessment years in their returns of income and paid tax on the same, then the assessee shall not be held as an assessee in default . In such a scenario, the provisions of section 40(a)(ia) does not have any application. It is ordered accordingly. Disallowance u/s 14A - HELD THAT - As per the order of Special Bench of the Tribunal in the case of Veerat Investments 2017 (6) TMI 1124 - ITAT DELHI only those investments, which have yielded exempt income has to be considered for the purpose of computing average value of investments for computing disallowance under Rule 8D(2)(iii). Hence, the issue of disallowance u/s 14A r.w.r.8D(2)(iii) is restored to the files of the A.O. A.O. is directed to follow the dictum laid down by the Special Bench order of the Tribunal in the case of Veerat Investments (supra) and compute the disallowance accordingly. Addition / deduction by treating the duty credit entitlement under SFIS accrued as grant related to revenue - HELD THAT - On identical facts, in the case of group company, namely, M/s.Delhi International Airport (Pvt.) Ltd. 2018 (5) TMI 334 - ITAT BANGALORE the issue was restored to the files of the CIT(A). Thus we restore this issue to the files of the A.O. The A.O. is directed to follow the directions of the Tribunal given above. Addition by including the revenue from NACIL on accrual basis - HELD THAT - On identical facts, the Hon ble jurisdictional High Court in the case of M/s.Delhi International Airport (Pvt.) Ltd. 2022 (1) TMI 841 - KARNATAKA HIGH COURT had decided the issue against the assessee. Thus we hold that the revenue from NACIL are to be recognized on accrual basis. Further, in tune with the finding of the Hon ble High Court, we direct the A.O. to exclude the income offered by the assessee on receipt basis. It is ordered accordingly. Disallowance of Community Development expenditure - HELD THAT - As decided in assessee s own case for assessment year 2009- 2010 2019 (7) TMI 1956 - ITAT BANGALORE 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. Under these set of facts, we are of the view that, 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 ld 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 order of the Tribunal, which has restored an identical issue to the files of the A.O., we restore the issue raised as regards the allowability of expenditure incurred on community development expenses to the files of the A.O. for de novo consideration

Summary

Issues Involved:
1. Inclusion of profit/loss of Passenger Service Fee (Security Component) managed in Fiduciary Capacity.
2. Disallowance under section 40(a)(ia) towards amount retained by airlines while remitting the amount of Passenger Service Fees (PSF) and User Development Fees (UDF).
3. Disallowance under section 14A.
4. Addition/deduction by treating the duty credit entitlement under SFIS accrued as grant related to revenue.
5. Addition by including the revenue from NACIL on accrual basis.
6. Disallowance of Community Development expenditure.

Detailed Analysis:

1. Inclusion of Profit/Loss of Passenger Service Fee (Security Component) Managed in Fiduciary Capacity:
The Assessing Officer (AO) included the surplus in Passenger Service Fee (Security Component) [PSF(SC)] as income assessable in the hands of the assessee for assessment years 2010-2011 to 2013-2014. The assessee argued that PSF(SC) is held in a fiduciary capacity and not taxable as its income. The CIT(A) upheld the AO's decision, referencing similar cases and a CBDT Office Memorandum (OM) which stated that PSF(SC) is taxable as income. The Tribunal restored the issue to the AO for fresh consideration, directing the AO to examine judicial pronouncements and provide a decision in accordance with the law after hearing the assessee.

2. Disallowance under Section 40(a)(ia) for Amount Retained by Airlines:
The AO disallowed amounts retained by airlines while remitting PSF and UDF, invoking section 40(a)(ia) for non-deduction of TDS under section 194H. The CIT(A) affirmed this view. The assessee contended that the airlines acted as principals and not agents, and the retained amounts were in the nature of cash discounts/incentives, not commission. The Tribunal accepted the alternate plea that the AO should verify if the recipient offered the income to tax and discharged the tax liability. The issue was restored to the AO to re-adjudicate in light of the proviso to section 40(a)(ia), ensuring no default if the recipient had paid the tax.

3. Disallowance under Section 14A:
The AO made further disallowances under section 14A beyond the assessee's suo moto disallowance. The CIT(A) granted substantial relief. The Tribunal directed the AO to compute disallowance under Rule 8D(2)(iii) only on investments that yielded exempt income, following the Special Bench decision in ACIT v. Veerat Investments.

4. Addition/Deduction by Treating Duty Credit Entitlement under SFIS as Grant Related to Revenue:
The AO treated the duty credit entitlement under SFIS as revenue receipt, taxable as income, a view upheld by the CIT(A). The assessee argued that this should reduce the capital cost and claimed depreciation on the reduced amount. The Tribunal restored the issue to the AO, directing adherence to the Tribunal's directions in a similar group company case, M/s. Delhi International Airport (P) Ltd.

5. Addition by Including Revenue from NACIL on Accrual Basis:
The AO taxed revenue from NACIL on an accrual basis, a decision affirmed by the CIT(A). The assessee acknowledged that the issue was covered against them by a jurisdictional High Court judgment in a group company case. The Tribunal upheld the accrual basis for recognizing revenue from NACIL, directing the AO to exclude income offered on a receipt basis.

6. Disallowance of Community Development Expenditure:
The AO disallowed community development expenditure, including donations to a trust. The assessee argued these were business expenses allowable under section 37(1). The Tribunal restored the issue to the AO for fresh consideration, directing examination of the connection between the expenditure and business advantage, and referencing judicial pronouncements supporting the deductibility of such expenses.

Conclusion:
The Tribunal allowed the appeals for statistical purposes, restoring several issues to the AO for fresh consideration and re-adjudication in accordance with specific judicial guidelines and after providing the assessee a reasonable opportunity to be heard.