TMI Blog2022 (2) TMI 1294X X X X Extracts X X X X X X X X Extracts X X X X ..... e-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 SFI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), all dated 29.12.2016. The relevant assessment years are 2010-2011 to 2013-2014. 2. Common issues are raised in these appeals, hence, these appeals were heard together and are being disposed of by this consolidated order. 3. In these appeals, in total, six issues are raised. The details of the issues raised in each of the appeal and the grounds pertaining to the same are summarized below:- Sl. No. Ground A.Y. ITA No. Ground No. Amount of addition /disallowance 1. Inclusion of profit / loss of passenger service fee (security component) managed in Fiduciary Capacity. 2010-2011 2011-2012 2012-2013 2013-2014 620/B/2017 633/B/2017 603/B/2017 604/B/2017 General 1 1 1 (8,91,85,072) 1,68,27,618 6,03,86,989 86,19,312 2. 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2011-2012 1,68,27,818 -- 3. 2012-2013 6,03,86,989 -- 4. 2013-2014 86,19,312 -- 4.1 The relevant facts and the finding of the A.O. in respect of PSF(SC) for assessment year 2013-2014, reads as follows:- Passenger Service Fee (PSF) : As per the clause 10.2 of the concession Agreement signed between the Ministry of Civil Aviation and the assessee, the assessee company is empowered to collect PSF at the airport from embarking passengers. The rate in respect of passenger service fees per embarking passenger is INR 200 in respect of ticket issued against INR tariff and US$ 5 per passenger in respect of tickets issued against dollar tariffs. The PSF is chargeable at the Airport and shall be inclusive of cost of security expenditure on the designated security agency (currently being sixty five percent (65%) of the Passenger Service Fee) per embarking passenger which is the Security Component and the facilitation component payable to the assessee company, (currently being thirty fiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iduciary capacity as a representative or a trustee of the Government. 3.1.13. Having regard to the above orders, agreements, policies and rules, the amount of security component of PSF, though collected by the assessee company, was held by it only in its fiduciary capacity under Rule 88 of the Aircraft Rules, 1937, and considered by the assessee company as a receipt which is diverted by overriding title in favour of the Government and accordingly, not offered by the assessee company as its own income. 3.1.14. The assessee company having regard to Article 285 and 289 of the Constitution of India which provide that the income of the Government of India is exempt from income tax, also did not offer the surplus / deficit from the escrow account as chargeable to tax under the Act even in its capacity as a Trustee of the said Fund held on behalf of the Government of India. The assessees submissions are perused. It is pertinent to mention here that the CBDT had already issued a detailed OM on the issue on 30/0612008. Para7 and 8 on the OM is reproduced here 7. The aforesaid view is further reinforced with the introduction of section 438 of the Income tax. act in 198]-84. Clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived by the assessee IS to be treated as revenue and the SOP issued by the Ministry of Civil Aviation on the issue, the PSF-SC received by the assessee is to be treated as income of the assessee and brought to tax. Further, the actual expenses incurred from PSF-SC is to be debited to P/L account as per' the provisions of section 43B. During the A.Y there was profit of Rs. 86,19,312/- as per normal provision and book profit of Rs. 3,07,54,394/- as per MAT provision in PSF(SC). Accordingly Rs.86,19,312 is added as PSF9SC) income of the assessee. 4.2 Aggrieved, the assessee raised this issue before the first appellate authority. The CIT(A) rejected the plea of the assessee. The relevant finding of the CIT(A) for A.Y. 2013-14 reads as follows:- 6.1.2 It is seen this issue has been examined in the case of one of the group entity namely, Delhi International Airport Private Limited by the CIT(Appeals) wherein after examining the Office memorandum of CBDT as well as SOP issued by MoCA it has been held that the PSF(SC) is to be included in the hands of the appellant. Accordingly, the action of the AO for including the amount of PSF(SC) in the hands of appellant is upheld and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision in accordance with law after affording a reasonable opportunity of being heard to the assessee. It is ordered accordingly. DISALLOWANCE U/S 40(a)(ia) OF THE I.T.ACT IN RESPECT OF PSF AND USER DEVELOPMETN FEES (UDF) : (ASST.YEAR 2010-2011 TO 2013-2014) 5. The Assessing Officer while completing the assessments for assessment years 2010-2011 to 2013-2014, had disallowed the amount retained by the Airlines while remitting the amount of PSF and UDF by invoking the provisions of section 40(a)(ia) of the Act. According to the A.O., the assessee ought to have deducted TDS u/s 194H of the Act and having failed to deduct tax at source, the expenses has to be disallowed. The details of the disallowance made for each of the assessment year are as follows:- Sl No. Assessment Year Passenger Service Fees UDF Total Security Component Facilitation component 1. 2010-11 82,65,926 44,84,901 1,19,99,078 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion that there are no overdue on any other account to the GHIAL regardless of the fact whether the airlines have received the amount of PSF and UDF or not on the tickets sold online through Credit/Debit card or through travel agents whom credit period is extended by them, etc. The collection charges retained by the airlines were meant to be paid as per the directive of Ministry of Civil Aviation (MoCA)/Airport Economic Regulatory Authority (AERA) and policy of the company on fulfilment of two conditions, namely (1) when airlines makes payment within 15 days; and (2) subject to the further condition that there are no overdue on any other account with DIAL. The amount of collection charges retained by the airlines in the facts and circumstances of the present case cannot be termed as a normal commission for services but the same was in the nature of cash discount/incentive in terms of directive of MoCA/AERA and the company policy for making early payment within 15 days and subject to the further condition that there are no overdue on any other account the GHIAL. The provisions of section 194-H are not attracted in this type of transaction in as much as the airline cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rival submissions and perused the material on record. The assessee has raised an alternate plea that in view of the second proviso to section 40(a)(ia) of the Act, the A.O. may be directed to verify whether recipient has offered to tax income and discharged the tax liability. It was submitted that in such an event the assessee may not be treated as, as a assessee in default . This plea of the assessee was accepted by the Bangalore Bench of ITAT in group cases of the assessee, namely, M/s.Delhi International Airport (P) Ltd. in ITA No.636, 622/Bang/2017 for assessment years 2011-2012, 2012-2013 and 2013-2014. The relevant finding of the Tribunal reads as follows:- 16. But this aspect was not examined by the CIT(A). Since it requires verification of facts, we feel it proper to set aside the order of the CIT(A) and restore the matter to the file of the AO with the direction to readjudicate the issue in the light of proviso to section 40(a)(ia) of the Act, after affording opportunity of being heard to the assessee and if it is established that the respondent has paid the tax and filed the return in time, the assessee should not be held in default for the purpose of making disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. Appellant Nil 3,65,011 Nil 3,65,011 2. Assessing Officer Nil 1,50,29,526 10,07,784 1,60,37,310 3. CIT(Appeals) Nil 3,60,911 8,82,784 12,43,695 A.Y.2011-12 1. Appellant Nil 1,00,82,344 5,22,767 1,06,05,111 2. Assessing Officer Nil 6,31,56,402 44,14,341 6,75,70,743 3. CIT(Appeals) Nil 13,901 42,89,341 43,12,242 A.Y.2012-13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LATED TO REVENUE : (ASST.YEAR 2010-2011 TO 2012-2013) 7. The assessee is a company engaged in the business of development, operation and management of Airport at Hyderabad. It is entitled to custom duty credit scrip under `Served From India Scheme (SFIS) of Foreign Trade Policy issued by the Government of India. In terms of SFIS, service providers are entitled to custom duty credit scrip as a percentage of foreign exchange earned which can be utilized against the payment of import duty on capital goods imported from outside India. The Assessing Officer treated the duty the duty credit entitlement under SFIS accrued as grant related to revenue receipt and thus liable for tax. (whereas the assessee treated the grant by reducing the same from capital cost and claimed depreciation on the reduced amount). The view taken by the A.O. was affirmed by the CIT(A). 7.1 Aggrieved, the assessee has raised this issue before the Tribunal. The learned AR submitted that on identical facts in the case of group company, namely, M/s.Delhi International Airport (P) Ltd. (supra), the Bangalore Bench of the Tribunal had restored this issue to the files of the CIT(A) for de novo consideration. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A). We therefore set aside his order and restore the matter to his file with a direction to readjudicate this issue afresh in the light of assessee's contentions and also in the light of the judgment of the Apex Court in the case of Ponni Sugars Ltd., (supra). 7.4 In the light of the aforesaid order of the Tribunal in assessee s own group case, we restore this issue to the files of the A.O. The A.O. is directed to follow the directions of the Tribunal given in the case of group company, namely, M/s.Delhi International Airport (P) Ltd. (supra) for assessment years 2007-2008, 2011-2012 to 2013-2014, while deciding the issue. It is ordered accordingly. ADDITION BY INCLUDING REVENUE FROM NAICL ON ACRUAL BASIS : (ASST.YEAR 2012-2013) 8. The assessee had recognized certain revenue from NAICL and its affiliates (Air India) on receipt / cash basis instead of accrual basis. The A.O. taxed the income on accrual basis. The view taken by the A.O. was affirmed by the CIT(A). 8.1 Aggrieved, the assessee has raised this issue before the ITAT for assessment year 2012-2013. The learned AR fairly submitted that the issue in question is covered against the assessee by the judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Education Health Empowerment 1. 2010-11 1,11,03,544 -- 9,86,475 5,41,228 86,86,721 8,89,120 2. 2011-12 1,12,22,971 12,82,500 18,75,629 17,56,802 62,30,218 77,822 3. 2012-13 1,46,62,162 3,55,116 21,07,541 18,58,251 96,58,058 6,83,196 4. 2013-14 1,35,08,087 30,000 26,95,078 21,16,648 86,15,905 50,456 9.1 According to the assessee, it had incurred the aforesaid expenditure on community development in and around the Airport. It was submitted that the said expenses were incurred wholly and exclusively in order to facilitate the business of the assessee to run in a smooth manner and to assist the employees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curity with regard to the payment made to GMR Varalakshmi Foundation and this difference needs to be reconciled. However, the details of expenditure incurred by the above said charitable organization were not furnished. We have noticed that the tax authorities have taken the view that the amount paid to this organization is in the nature of donation, while the assessee claims the same to be reimbursement. Before us, the Ld A.R placed reliance on the resolution passed by Board of directors. However, in our view, the financial statements of MIs GMR Varalakshmi Foundation may be helpful to determine the character of amount paid to it by the assessee. Hence the financial statements of GMR Varalakshmi Foundation also require examination. 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 ..... 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