TaxTMI 
TaxTMI 
TaxTMI 
2017 (12) TMI 1214
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....t of upfront fee. 2. On the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in deleting the addition made by the AO of Rs. 24.00 crore which was proved to be capital expenditure in nature against assessee's claim on account of repair & maintenance of building, plants and others. 3. On the fads and circumstances of the case and in law, the Ld. CIT (A) has erred in restricting the disallowance u/ s 14A of the Act read with rule 8D of the Rules to the tune of 5% of dividend income. 4. On the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in allowing the assessee to claim deduction u/s 80IA of the Act, for statistical purpose, if the assessed income would be positive." 3. In ground No. 1, the revenue has challenged the finding of the Ld. CIT (A) in treating the "Upfront fees" of Rs. 150,00,00,000/- as revenue expenditure instead of capital expenditure treated by the AO. The brief facts and background qua the issue raised in ground No. 1 are that, 'Delhi International Airport Limited' (hereinafter referred to as 'assessee' or 'DIAL' or JVC) was incorporated as a Joint Venture Company in the year 2006, between a consorti....
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.... the function of operating, maintaining developing, designing and constructing, upgrading financing and managing the Airport for this purpose AAI has lease the premises constituting the Airport site to the DIAL. Thus in terms of OMDA, DIAL is required to perform various functions including construction of various structure on the airport site within prescribed period on the premises leased by AAI. DIAL is entitled to use and occupy the property with the building, structure therefore for a period of 30 years and further renewal for a period of another 30 years upon payment of Rs. 100 per annum, after the expiry of lease period the airport site with the building, therefore, had to be handed over to the AAI. Both the aforesaid amounts have been shown in a fixed assets schedule under head intangible assets in the books of a/c to be amortized spread over the concession period. However the income tax purpose both the aforesaid amounts are claimed as revenue expenditure. Based upon decision of the High Court wherein they have categorically held that the lump sum payment made to get leasehold rights would be in the nature of future rent payable and the amount incurred on structure of do....
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....ease hold rights, therefore, the assessee has deducted TDS u/s 194I (i.e., by treating it as rent). In support of such a claim that it is in the nature of rent and allowable as revenue expenditure in the year in which it is claimed, the assessee relied upon the following decisions:- i. Decision of Hon'ble Supreme Court in the case of Empire Jute's case (124 ITR 1). ii. CIT v Madras Auto Services P. Ltd. (1998) 233 ITR 468. iii. Assam Bengal Cement Co. Ltd. v. CIT (1955) 27 ITR 34. iv. CIT V HMT Ltd. 203 ITR 820. v. CIT v. Gemini Arts P Ltd. (2002) 254 ITR 201 (Mad.) vi. CIT vs. Madras Auto Service P. Ltd. (1998) 233 ITR 468. vii. CIT vs. Ucal Fuel Systems Ltd. 296 ITR 702. viii. Amway India Enterprises v DCIT 111 ITD 112 (Del) (SB) 5. Regarding payment of sum of Rs. 45.5 crores to AAI in respect of capital work-in-progress (CWIP) under clause 5.4 of OMDA, the assessee submitted that under the terms of OMDA, assessee was liable for performance of all work-in-progress at the airport for which the assessee need to make all the payment in respect of capital workin- progress at the airport from 30th August, 2005 till the effective date. Since, on the completion of the w....
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.... allowable to the assessee as an expense of the year and balance 29/30th has to be disallowed. Thus, expenses to the tune of Rs. 188,98,34,000/- is disallowed and added to the total income of the assessee." 7. Before the Ld. CIT (A) the assessee highlighted the following important facts on this issue:- * For being awarded the contract under OMDA, the 'Request for Proposal' (RFP) was the basis. Para 3 of the RFP provided that:- "Over the tenure of the OMDA, the Joint Venture Company will pay both a nominal lease rental and a fee (consisting of an upfront fee of Rs. 1,500 million and an annual fee expressed as a percentage of gross revenue of the Airport... " * Pursuant to the above award, OMDA was entered into on April 4, 2006 which, inter-alia, provided for entering into a lease agreement. Accordingly, a Lease agreement was entered into on April 24, 2006. * Para 4.1 of the Lease Agreement reads as under: "4.1 In consideration of the Lessor leasing the Demised Premises to the Lessee and granting the rights, privileges and benefits set forth in this Lease Deed, the Lessee shall pay to the Lessor, throughout the Term, an annual lease rent of Rs. 100/- payable in advance on....
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....n ask the AO to make further inquiry and to report the matter to him; and secondly, these documents are quite essential to decide the controversy. Therefore, there is no question of non admission of additional evidence as the same has been called by the CIT (A) in the course of making inquiry. Thereafter, he has incorporated and dealt with the detailed written submissions filed by the assessee which is appearing from pages 5 to 13 of the appellate order. In sum and substance the assessee's submission before the Ld. CIT (A) can be summarised as under:- i) The 'upfront fees' in substance was paid for grant of lease hold rights in the property leased by AAI for the term of OMDA and was in the nature of lump-sum rent paid and because of this lump-sum payment, the assessee was required to pay a nominal rent of Rs. 100 per annum over the lease period of 30 years. In terms of para 3 of "Request For Proposal" (RFP) the 'upfront fee' received by the assessee though has been amortised by AAI in its books of accounts, however in the return of income, the entire receipt has been offered as revenue receipt by the AAI and in support, the copy of computation of income and relevant extract of re....
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.... in the case of CIT vs. Madras Auto Service P. Ltd. (supra) and other decisions relied upon by the assessee, he held that the 'upfront fee' is allowable as revenue expenditure. While coming to his conclusion that upfront fees is nothing but onetime payment of lease rent and therefore is allowable, he relied upon the judgment of Hon'ble Gujarat High Court in the case of DCIT vs. Sun Pharmaceuticals Limited (supra). 11. Before us, the Ld. CIT (DR) after referring to the various observations of the AO, she submitted that the assessee has claimed deduction of Rs. 195.50 crore from its taxable income on account payment to AAI for taking over Airport, which includes:- * Non-refundable upfront fee of Rs l50 crore and amount of Rs. 45,50,4000/- in relation to WIP reimbursed to AAI as per terms of OMDA (Operation, management & development Agreement) incurred prior to taking over of Airport. * Both amounts are shown in the fixed assets schedule under head, 'Intangible Assets' in books of account to be amortized over the concession period of the concessionaire. However, for income tax purposes, amounts claimed as revenue expenditure. * Upfront fees is in the nature of license f....
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....inerals as one fixed amount for entire lease is Capital Expenditure, and proportionate amount of Rent not allowable as deduction; Enterprising Enterprises vs. DCIT 293 ITR 437 (SC). * Treatment in Books of Accounts vs. Nature of Expense: The treatment of particular expense or a provision in the Books of Accounts can never be conclusively determinative of the nature of expense. An assessee cannot be denied claim for deduction which is otherwise tenable in law, on the ground that the Assessee had treated it differently in the books. The opposite is also true; CIT vs. Asahi India Safety Glass Ltd (Del.) * Book Entries are not decisive or conclusive in determining the allowbility or taxability of a particular item of expenditure or income; Bharat Carbon and Ribbon Mfg. Co. Pvt. Ltd. 239 ITR 505; Kedarnath Jute Mfg. Co. Ltd. 82 ITR 363 (SC)]147. 13. So far as the conclusion of the AO that only 1/30th should be allowed, she referred to the judgment of Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation, reported in 225 ITR 802, wherein the concept of expenditure which can be deferred for the period of lease has been upheld. However, her main contention was ....
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....oposition that advance licence fee or advance rent can be allowed as revenue expenditure in the year in which it is claimed, he strongly relied upon the decision of Gujarat High Court in the case of DCIT vs. Sun Pharmaceuticals Limited (supra) and CIT vs. HMT Ltd. (supra). 15. Mr Dastur further submitted that, under the terms of OMDA there is no transfer of any right to the assessee, in fact all the rights and licences required for running of the airport including the fees/ tax collected from the passengers and airline etc., was to be obtained or to be collected by the assessee and it was not transferred by AAI to assessee. He stressed very heavily upon the point that, the AO himself has treated that the 1/30th of the said payment is to be regarded as revenue expenditure and only the balance amount has been held to be allowed over the balance period of 29 years and therefore, in this manner AO has deferred the revenue expenditure over the period of 29 years and in support of this treatment, the AO as well as the Ld. CIT (DR) has strongly relied upon the judgment of Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation (supra). Mr Dastur submitted that it is....
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....hich it is incurred. Unlike in the instant case, where the claim for deduction has been made in the return of income, in that case, the claim was made for the first time before the appellate authorities. * CIT vs. Citi Financial Consumer Fin Ltd - 335 ITR 29 (Del HC) - Payment of advertisement expenses was claimed as revenue in nature. According to the AO, benefit accrued from the advertisement campaign over a period of several years, and therefore, he allowed the claim of the assessee on a spread over basis. It was held that under the Income-tax Act, the concept of 'deferred revenue expenditure did not exist and the expenditure had to be allowed in the year in which it was incurred. * CIT vs. Vodafone Essar South Ltd - 55 taxmann.com 289 (Del HC) - The AO held the brand launch expenses to be revenue in nature but had deferred the same over a period of several years. The CIT (A) sustained the same for the reason that there was an enduring benefit. The ITAT reversed the order of the CIT (A) and the same was upheld by the HC for the reason that once it is held that the payment is revenue in nature, it has to be allowed in the year in which it is incurred. In the instant case....
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....he supply of further information may be stopped to the assessee even though it continues to be a member of the organisation. It was held that by the payment of initial membership fee, the assessee did not acquire an asset of enduring nature. The payment of Rs. 150 crore in the instant case takes the same colour as the membership fee for the same reason. ii. Neset Holdings Pvt Ltd - 282 ITR 601 (Del HC):- One-time non-refundable expenditure of Rs. 3 lakh was incurred for obtaining OTCEI membership which gave a right to the assessee to access facilities. The assessee was also liable to pay different types of fees annually. It was held that the payment of Rs. 3 lakh was revenue in nature as, unless the annual fees were paid, the assessee would have been regarded as an inactive member. Following Engineer's India's case (Supra), it was held that no enduring benefit was obtained and therefore, payment is revenue in nature. 18. Mr Dastur further submitted that the sum of Rs. 150 crores cannot be seen as an independent payment, because it is linked with the nominal rent of Rs. 100 per annum and if the annual fees of 45.99% of gross revenue is reckoned on revenue account by the D....
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....assessee has obtained any license to carry out the operation and management of the airport and collect charges for the services as it deems fit in as much as the same are govern by the provisions of SSA and the applicable law. 21. During the course of hearing, Ld. CIT (DR) has also brought to our notice, the decision of ITAT Mumbai Bench in the case of Mumbai International Airport in ITA No. 7507/M/2011 (order dated 14.2.2014) to point out that Tribunal has taken a view that depreciation is to be allowed on the payment of one time 'upfront fee' which goes to show that, in that case also the 'upfront fee' has been treated as capital expenditure by the assessee. Countering this judgement, Mr Dastur submitted that in said case it was never an issue, whether the payment is to be regarded as capital or revenue, but the nature of controversy was, whether the depreciation can be allowed in the said payment or not. Thus, this judgement will not impinge upon whether the payment of upfront fees is of revenue in nature or not and we agree with him that this decision does not lead to any persuasive inference on the issue involved before us. 22. We have carefully considered the rival submissi....
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.... in proposition to their share holding which for the sake of ready reference is reproduced herein below:- S. No. Shareholder Percentage shareholding 1. AAI 100% As of the Effective Date: S.No. Shareholder Percentage of shareholding 1. GMR Infrastructure Ltd. 31.1% 2. GMR Energy Ltd. 10.0% 3. Fraport AG Frankfurt Airport Services Worldwide 10.0% 4. Malaysia Airports (Mauritius Private Limited) 10.0% 5. GVL Investments Pvt. Ltd. 09.0% 6. India Development Fund 03.9% 7. AAI 26.0% 23. Pursuant to OMDA, a lease deed was simultaneously entered into between AAI and DIAL for the lease of 'Airport site' which had an area of more than 4609 acres, at a very nominal lease rent of Rs. 100 per annum for a period of 30 years and this was further extendable for another period of 30 years at the discretion of the parties. Apart from that, the assessee was also required to pay "Upfront Fees" of Rs. 150 crores; and also 'Annual fees' expressed in the terms of percentage of revenue, which was determined at 45.99% of the gross revenue for allowing the assessee to carry on the function of development, operation and management of the Delhi Airport. The AO treate....
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....iod of 30 years in accordance with terms and conditions of the transaction document. The successful bidder was to have 74% equity interest and AAI along with the GOI and public sector entities will have 26% equity interest in the JVC. Already the ratios of equity interest of various entities have been highlighted above. Another key feature was that under the 'State Support Agreement' the JVC will have "right of first refusal" (ROFR) with regard to the second airport in the vicinity on the basis of competitive bidding process in which JVC can also participate and in the event JVC is not the bidder it will have ROFR by matching the first ranked bid in terms of selection criteria for the second airport, provided the JVC has satisfactory performance when any material default at the time of exercising the ROFR. It was further stipulated that the JVC for the airport will have a lease over the land and assets of the Airport for the tenure of the OMDA. The most crucial feature with regard to the payment was as under:- "Over the tenure of the OMDA, the Joint Venture Company will pay both a nominal lease rental and a fee (consisting of an upfront fee of Rs. 1,500 million (Rupees one thousa....
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....the agreement, that is, the entire airport site was leased to the assessee. The lease deed was defined as "lease deed to be entered into between the parties for the demised premises". The ground of function and the sole purpose of the JVC was stipulated as under:- "AAI hereby grants to the JVC, the exclusive right and authority during the term to undertake some of the functions of the AAI being the functions of operation, maintenance, development, design, construction, upgradation, modernization, finance and management of the Airport and to perform services and activities constituting Aeronautical Services, and Non-Aeronautical Services (but excluding 'Reserved Activities') at the airport and the JVC hereby agrees to 'undertake the functions of operation. maintenance, development, design, construction, upgradation, modernization, finance and management of the Airport and at all times keep in good repair and operating condition the Airport and to perform services and activities constituting Aeronautical Services and Non- Aeronautical Services (but excluding Reserved Activities) at the Airport., in accordance with the terms and conditions of this Agreement (the "Grant"). ....
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....Encumbrances thereto, (hereinafter "Demised Premises") to hold the said Demised Premises, together with all and singular rights, liberties, privileges, casements and appurtenances whatsoever to the said Demised Premises, hereditaments or premises or any part thereof belonging to or in any way appurtenant thereto or enjoyed therewith, for the duration of the term hereof for the purposes permitted under this Agreement. In the event at any time during the Term, the JVC requires the hundred (100) hectares of land (or any part thereof) as identified in the Initial Development Plan and deducted for determining the Demised Premises (the "Excluded Premises"), for the purposes or provision of Aeronautical Services, then JVC may request AA1 to lease such Excluded Premises, or part thereof, as the case be, and upon such request the Parties shall enter into a lease deed for grant of such lease It is expressly clarified that the leasehold rights agreed to be granted hereunder shall terminate forthwith upon the expiry or early termination of this Agreement for any reason." The transfer of rights in relation to the airport on the effective date and transaction was highlighted in the followin....
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.... AAI (in case of non-fulfilment of any of the JVC Conditions Precedent) and any of the Parties (in case of non-fulfilment of Common Conditions Precedent) may terminate this Agreement. Provided however that in the event this Agreement is terminated by AAI for non-fulfilment of the JVC Conditions Precedent, the AAI shall be entitled to encash the Bid Bond/Performance Bond (as the case may be) Provided further that upon any such termination, each Party shall return to the other Party, any monies (other than the termination payments mentioned above) received from such Party prior to such termination. Neither Party shall be entitled to terminate this Agreement for nonfulfilment of the JVC Conditions Precedent, or the AAI Conditions Precedent, or the Common Conditions Precedent, as the case may be, to the extent that such non fulfilment is the result and/or consequence of any event of Force Majeure." Further under the OMDA, the JVC was entitled to collect charges for aeronautical services in accordance with the provisions of 'State support agreement' and charges for non-aeronautical services and passenger services which were to be held in fiduciary capacity. Lastly, the term o....
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....or development, operation and management of the airport. Nowhere in the OMDA agreement, is it borne out that the 'upfront fee' was for acquiring any tangible or intangible assets. The rights as envisaged has been granted by the AAI to the assessee to undertake some of the functions of AAI in connection with the operation, management and development of the airport for which the consideration paid is by way of 'annual fees'. The entire airport site with the facilities has been handed over to the assessee to perform the activity which was earlier carried out by the AAI under revenue sharing basis. One of the key proposition urged by Mr Dastur was that for granting lease of the airport site comprising of more than 4609 acres of land for a period of 30 years, annual lease rent of Rs. 100 per annum is too miniscule and this is so, because the assessee had to pay Rs. 150 crores as a onetime payment over the entire period of 30 years. Such a payment can be reckoned as lease premium or licence fee as held by the AO. In other words, it has to be construed that it is towards the lease payment only and once that is so, then in terms of various judicial pronouncements as relied upon by him it h....
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.... the payment here is for securing a lease period of 30 years of the airport for carrying out the operation and development of Airport and is part of the lease consideration. As regard the test of 'enduring benefit' or the expenditure being of enduring nature as canvassed by the Ld. CIT DR before us, it would be relevant to refer to the judgment of Hon'ble Supreme Court in the case of Empire Jute Company (1980) 124 ITR 1, wherein the Hon'ble Supreme Court has repelled the theory of expenditure of enduring nature in very elucidate manner. The Hon'ble Supreme Court after taking note of various judicial decisions and various tests evolved for distinguishing the capital and revenue expenditure, held that no test is paramount or conclusive as every case has to be decided on its facts keeping in mind the broad picture of whole operation in respect of which the expenditure has been incurred. Hon'ble Apex Court has also added a caution in such cases in the following manner: "... There may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, none the less, be on revenue account and the test of enduring benefit may break down. It is not every advant....
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....f the Airport Site for a period of 30 years can be reckoned as revenue or not, appears to be quite settled proposition in wake of the following judgements which has been highlighted and stressed upon by the Ld. Sr. Counsel for the assessee before us:- i. DCIT vs. Sun Pharmaceutical Ind. Ltd. - 329 ITR 479 (Guj HC) - In this case, the assessee was the lessee of land. The period of lease was 99 years. In addition to an annual lease rent of Rs. 40 per annum, the assessee paid Rs. 48 lakh to GIDC as advance rent. The AO disallowed the claim for the reason that the assessee obtained an enduring benefit for a period of 99 years in the form of use of the land and therefore he held that the payment was capital in nature. The High Court upheld the finding of the Tribunal that the land in question was not acquired by the assessee and that the lease rent was very nominal and the sum of Rs. 48 lakh was in the nature of rent and the assessee only acquired a facility to carry on business profitably by paying a nominal lease rent together with lump sum amount of Rs. 48 lakh. The fact that the lease deed was registered was irrelevant. Therefore, it was held that the payment was revenue in nature....
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....er the expenditure for a period of 39 years. The relevant facts in that case were as under:- The assessee-company had obtained premises on lease for a period of 39 years. Under the terms and conditions of the lease, the lessee (the assessee-company) had demolished the existing construction and constructed a new building thereon to suit the purposes of their business as per the plan approved by the lessors, and used to pay rents lower than the rents prevailing in vicinity. The lease deed provided that the new construction shall, right from the commencement of the work, be the property of the lessors; and upon completion of the work of construction the lessee will have only the right to be a tenant for a period of 39 years under the existing lease subject to the payment of rent and observation of other terms and conditions of the lease. The lessee shall not be entitled under any circumstances for any compensation whatsoever on account of its putting up the new const- ruction in the place of the old. The assessee claimed that the expenditure spent on construction was revenue expenditure. The Assessing Officer rejected its claim and treated the said expenditure as capital expenditu....
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....essee but the assessee got the business advantage of using modern premises at a low rent, thus, saving considerable revenue expenditure for the next 39 years, both the Tribunal as well as the High Court have rightly come to the conclusion that the expenditure should be looked upon as revenue expenditure. 33. The aforesaid judgment first of all, in no way support the case of the Revenue, because in this case the Hon'ble Supreme Court has categorically held that, since the asset created by the assessee by spending the amounts did not belong to it but only business advantage of using modern premises at a low rent thus saving considerable revenue expenditure for next 39 years, then the said expenditure should be treated as revenue expenditure. Nowhere the Hon'ble Apex Court has laid down the proposition that, under the Income Tax law there is a concept of 'deferred revenue expenditure'. In fact this concept was discussed in the case of Madras Industrial Corporation Ltd. vs. CIT (1997) in 225 ITR 802, which too has been referred by Ld. CIT (DR) to justify the action of the AO in deferring the expenditure for the period of 30 years. This judgement of the Hon'ble apex court had come up ....
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....ts may justify an assessee who has incurred expenditure in a particular year to spread and claim it over a period of ensuing years. In fact, allowing the entire expenditure in one year might give a very distorted picture of the profits of a particular year. Thus in the case of Hindustan Aluminium Corporation Ltd. vs. CIT, ( 1982) 30 CTR (Cal) 363: (]983) 144 ITR 474 (Cal) the Calcutta High Court upheld the claim of the assessee to spread out a lump sum payment to secure technical assistance and training over a number of years and allowed a proportionate deduction in the accounting year in question. 16. Issuing debentures at a discount is another such instance where, although the assessee has incurred the liability to pay the discount in the year of issue of debentures, the payment is to secure a benefit over a number of years. There is a continuing benefit to the business of the company over the entire period. The liability should, therefore, be spread over the period of the debentures." 17. Thus, the first thing which is to be noticed is that though the entire expenditure was incurred in that year, it was the assessee who wanted the spread. The Court was conscious of the pri....
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....unts and classifying the said payment as capital, i.e., it has been capitalised in the books will not at all be determinative as it has to be seen on the facts whether such a payment or expenditure falls in the capital filed or revenue field. 35. One more important aspect in this case is that, if the assessee had acquired any right by making payment of Rs. 150 crores, then under the terms of OMDA it is clearly stipulated that the payment of 'annual fee' of 45.99% of the gross revenue of the year is not made continuously then the OMDA agreement will come to an end. On this fact also the assessee has not acquired any licence or right by making the payment of Rs. 150 crores. Thus, on this count also it cannot be held that the said sum is for acquiring any licence or right. In view of the aforesaid discussion and analysis we are of the opinion that the payment of Rs. 150 crores is to be treated as revenue expenditure and order of the Ld. CIT (A) allowing such expenditure is affirmed and grounds taken by the revenue is dismissed. 36. The next issue raised in ground No. 2 is with regard to deletion of addition of Rs. 24 crores which according to the AO was capital expenditure and asses....
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.... at TIA: 432276.79 Renovation of Toilets at TIA: 944121.04 Renovation of Toilets at TIA: 723051.41 Renovation of Toilets at TIA: 582157.63 Renovation of Toilets at TIA: 5516.40 Renovation of Toilets at TIA: 249912.12 Modification and creation of car parking: 340946.00 Light fixture for Uddan Bhawan: 620781.00 Purchase of painting and framing work: 173895.00 Installation and commissioning charges of AC: 325570.22 Advertisement charges for newspaper: 15461755.00 37. The AO held that since these expenses are going to give assessee a long term benefit for a period of 30 years, accordingly, he allowed 1/30th portion of the said expenditure and balance of 29/30 has been disallowed. He had also noted that assessee has dismantled many existing structures and constructed new ones and since these are the construction of new structures, therefore, it has to be treated as capital expenditure and accordingly, he added sum of Rs. 23.20 crores. 38. Before Ld. CIT (A) the main argument of the assessee was that the expenditure incurred towards repairs and maintenance is in the nature of current repairs as:- * The expenditure was incurred in modernizing the existing property....
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....tion and maintenance standards and requirements and renew, replace and upgrade to the extent reasonably necessary. All maintenance, repair and other works were to be carried out in such a way as to minimise inconvenience to users of the Airport. b. By looking at the nature of repairs, it can never be said that the assessee has created a new infrastructural facility and dismantled existing structure and constructed new structures. The assessee did not obtain any new asset by carrying out the activities of repairs. It is also evident that the repairs were carried out in Terminal 1A/ 1B which ceased to be operative from May 2009 and July 2010 respectively. Therefore, there cannot be any question of an enduring benefit obtained by the assessee. Further, in any case, one has to look at the totality of the expenditure involved in running and maintaining the airport and one cannot pick up 2 or 3 items to say the same is having enduring benefit and hence are capital in nature. c. The Assessing Officer had amortised the expenditure over 30 years and thereby allowing only 1/30th of the expenditure for the year under appeal. It is submitted that the Assessing Officer having allowed 1/30....
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....e treated as expenditure on repair and maintenance and therefore, AO is directed to remove this expenditure from the head 'repair and maintenance of building etc. With this direction, ground No. 2 as raised by the revenue is partly allowed. 43. In ground No. 3 the revenue has challenged the direction of the Ld. CIT (A) in restricting the disallowance u/s 14A to the tune of 5% of the dividend income. The Ld. AO noted that assessee has earned tax free dividend income of Rs. 2,31,54,191/- and required the assessee as to why disallowance under rule 8D should not be made. The assessee submitted that in order to pay 'upfront fee' of Rs. 150 crores to AAI, assessee had approached banks for such a payment and since funding by way of borrowing of such payment was taking time it was decided to bring equity of Rs. 200 crores in April 2006 and the surplus arising from the operation was kept in mutual funds. When the funding was received then the same got substituted by the borrowed money of Rs. 150 crores from the banks which was utilised in incurring of cost of airport project. Thus, investment in funds were not made from borrowed funds but from share capital and internal accruals from time ....
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....his issue was never disputed. Regarding deletion of interest, he relied upon judgement of Hon'ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd., 366 ITR 505; and CIT vs. Reliance Utilities and Power Ltd., 313 ITR 340, wherein the Hon'ble High Court has held that if the assessee has owned sufficient funds or interest free funds, sufficient enough to cover the investments, then no interest expenditure can be attributed for the purpose of disallowance. 47. We have heard the rival submissions and perused the relevant findings given in the impugned order. Ostensibly, the invoking of Rule 8D for making the disallowance u/s 14A in the impugned assessment order cannot be upheld and this proposition is fairly settled by the judgement of Hon'ble Bombay High Court in the case of Godrej and Boyce (supra). Thus, we hold that Ld. CIT (A) has rightly held that disallowance cannot be determined in accordance with Rule 8D. So far as the deletion of interest expenditure is concerned, the assessee before the AO had clearly stated that the equity funds as well as accrual from day to day income has been invested in the mutual funds which has yielded dividend income. No borrowed funds have be....
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....emand report has only contested that claim u/s 80IA cannot be entertained since it was not made in the return of income. 11.6 In view of the above discussion, the question of rejection of the claim merely on the basis that it has not been made in the return of income does not arise. However, the prayer of the Appellant is that the said deduction be allowed if the assessed income is a positive figure. In view of the decisions in respect of the grounds of appeal dealt with above, the income of the Appellant would not be a positive figure. Therefore, this ground is allowed for statistical purposes." 49. After hearing both the parties, we do not find any infirmity in the direction of the Ld. CIT(A), because, the assessee is carrying on the business of operating and maintaining of airport which is an eligible business specified in section 80IA(4)(i) for which assessee is eligible for claim for deduction u/s 80IA. In support of the claim, audit report in prescribed form had already been obtained. The said claim was not made in the return of income, because there was a huge loss of more than Rs. 155.55 crores. It was only when huge income was assessed at positive figure; assessee has....
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....enditure incurred in WIP was an asset not belonging to the assessee, and therefore, the assessee had claimed the same as revenue expenditure. This it was contended from the fact that the OMDA provides that the assessee would return the "transfer assets" back to the AAI. Upon completion of the work, the abovementioned assets would be the property of the AAI and no right except those mentioned in the OMDA would vest in our Company. This it was stated that is amply clear from the OMDA that all land and building being 'Transfer Assets' belong to AAI. The amount so incurred on the CWIP being in the nature of an asset not belonging to assessee and hence, was claimed as revenue expenditure. It was submitted that, it is settled law that where expenditure has been incurred on a capital asset to facilitate the business of the assessee and where the ownership of the capital asset belongs to a third party, the amount so incurred is an allowable revenue expenditure. Reliance was placed on various decisions like CIT vs. Associated Cement Companies Ltd. [1988] 172 ITR 257 (SC); CIT vs. Saw Pipes Ltd. (2007) 208 CTR (Del) 476; and other decisions as incorporated by the Ld. CIT (A) from pages 17 to....
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....evenue expenditure. Thus, order of the Ld. CIT (A) on this score is affirmed and the ground raised by the assessee is dismissed. 56. In the result cross objection filed by the assessee is dismissed. 57. Now we shall come to the penalty appeal, wherein the revenue is aggrieved by deletion of penalty of Rs. 11,48,64,750/- on account of disallowance of expenditure of Rs. 4,50,00,000/-on account of payment made by the assessee to AAI towards capital-work-inprogress. The relevant facts have already been discussed by us in the quantum proceedings hereinabove while dealing with the cross objection No. 2 of the assessee., Ld. AO has levied the penalty on this disallowance by holding that assessee has furnished inaccurate particulars of income and held that assessee itself in assessment years has treated similar nature of expenditure as capital, whereas in this year it has treated as revenue. Thereafter, relying upon the principle laid down by the Hon'ble Supreme Court in the case of Dharmendra Textile Processors (supra) AO has levied the penalty of Rs. 11,48,64,750/-. 58. Ld. CIT (A) had noted the following facts as stated by the assessee of the disclosure made by the assessee in the do....
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....to catena of judgments which has been dealt and referred by him in the impugned order right from pages 18 to 25. 60. After hearing both the parties at length on various factual and legal aspects, we find that the assessee while making the claim for aforesaid expenditure as revenue expenditure has given complete disclosure not only in the return of income wherein separate schedule has been given qua this claim but also in the audit report the accounting treatment followed with respect to the amount of 'upfront fees' and 'CWIP' were disclosed in the fixed assets and also detailed note was provided in this regard. In the computation of income again the disclosure was made with proper explanation and documents. This fact has been clearly noted by the Ld. CIT (A) in the impugned order. Before the AO the assessee had duly explained as to why such an expenditure is to reckoned as revenue, because it has made the payment for expenses incurred by AAI on the airport which it was required to reimburse in terms of OMDA and since such payment was made in this year therefore, same was claimed as revenue expenditure in this year. One very important fact which is to be noted here is that the Ld. ....