2020 (1) TMI 1609 - ITAT MUMBAI

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.