2019 (6) TMI 1370 - AT - Income Tax

Tribunal rules in favor of assessee, treats disputed incomes as business income, no disallowance under section 14A

M/s. Maharashtra Airport Development. Company Ltd. Versus DCIT, Range 3 (2), Mumbai

M/s. Maharashtra Airport Development. Company Ltd. Versus DCIT, Range 3 (2), Mumbai - TMI Issues Involved:1. Taxability of interest on fixed deposits under 'income from other sources.'2. Taxability of interest on contractor advances under 'income from other sources.'3. Allowability of interest expenditure under section 36(1)(iii).4. Taxability of processing fees and lease premium under 'income from other sources.'5. Enhancement of income by the Commissioner of Income Tax (Appeals) [CIT(A)].6. Taxability of a grant received for repairs and maintenance of airports under 'business income.'7. Taxability of rental income under 'Income from House Property.'8. Allowability of depreciation as a deduction when income is assessed as 'Income from House Property.'9. Allowability of expenditure claimed in earning rental income.10. Assessee's objection to the enhancement of income.11. Disallowance under section 14A.12. Legality of additions and disallowances.13. Initiation of penalty under section 271(1)(c).Issue-wise Detailed Analysis:Issue No. 1:The assessee contested the taxability of interest on fixed deposits (Rs. 59,58,791) under 'income from other sources.' The Tribunal referenced its own prior decision for AY 2008-09, where the matter was remanded to the Assessing Officer (AO) to verify if the fixed deposits (FDs) were made out of surplus funds or loans/borrowings and for short periods. The AO, following the Tribunal's directions, treated such interest as business income. The Tribunal upheld this treatment for the current year, finding no change in facts or law.Issue No. 2:The assessee challenged the taxability of interest on contractor advances (Rs. 1,42,29,269) under 'income from other sources.' The Tribunal referred to its previous decision for AY 2008-09, where it held such interest as business income based on the Gujarat High Court ruling in Nirma Industries. The Tribunal found no distinguishing facts for the current year and upheld the treatment of such interest as business income.Issue No. 3:This issue regarding the allowability of interest expenditure under section 36(1)(iii) was deemed moot as the Tribunal already treated the interest income as business income under Issues 1 and 2.Issue No. 4:The assessee contested the taxability of processing fees (Rs. 9,066) and lease premium (Rs. 39 lakhs) under 'income from other sources.' The Tribunal referenced its prior decision for AY 2007-08, where it treated such income as business income. The Tribunal found no change in facts and upheld the treatment of such income as business income.Issues No. 5 and 6:The assessee challenged the CIT(A)'s enhancement of income by treating a grant (Rs. 1 crore) received from the Government of Maharashtra for airport repairs and maintenance as business income. The Tribunal referenced decisions in City and Industrial Development Corporation of Maharashtra Ltd. and Karnataka Urban Infrastructure Development & Finance Corpn., where similar grants were treated as capital receipts. The Tribunal found the grant to be capital in nature and not taxable as income. Additionally, the Tribunal upheld the treatment of rental income (Rs. 1,05,000) as business income, referencing its prior decisions and the main object of the assessee's business.Issues No. 8 to 10:These issues were linked to Issues 5, 6, and 7. The Tribunal found no need for separate adjudication as they were consequential to the decisions on those issues.Issue No. 11:The assessee contested the disallowance under section 14A (Rs. 8,09,084). The Tribunal noted that the assessee did not earn any exempt income during the relevant year, referencing decisions in Principal CIT vs. McDonald’s India (P.) Ltd. and PCIT vs. Ballapur Industries. The Tribunal held that no disallowance was required under section 14A and set aside the CIT(A)'s finding.Conclusion:The Tribunal allowed the appeal of the assessee, setting aside the CIT(A)'s findings on various issues and treating the disputed incomes as business income or capital receipts, as applicable. The Tribunal also held that no disallowance was required under section 14A due to the absence of exempt income.