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Income Tax Appellate Tribunal, “C’’ BENCH : BANGALORE
Before: SHRI N.V VASUDEVAN, VICE PRESIDNET & SHRI B.R BASKARAN
O R D E R Per B.R Baskaran, Accountant Member
The appeal filed by the assessee is directed against the order 31/10/2016 passed by Ld CIT(A)-3, Bengaluru and it relates to the assessment year 2009-10.
The assessee company is engaged in the business of operating, maintaining, developing, designing, constructing, financing and managing the airport and development of related infrastructure. The assessment for the year under consideration was completed by the AO by making various additions. The assessee got partial relief before ld CIT(A) and hence the assessee has filed this appeal before us.
The first issue relates to disallowance of claim of expenditure on repairs and maintenance of building, plant and machinery. The assessee had claimed sum of Rs.29.25 crore under the head ‘repairs and maintenance’. The AO noticed that the above said expenditure included repairs and maintenance of office building and hotel amounting to Rs.357.62 lakhs. The AO noticed that the assessee had commenced operations relating to operating and maintaining Airport of Hyderabad with effect from 23/3/2008 only. Accordingly, he took the view that the expenditure incurred on Office building and Hotel is capital in nature, since the same would not qualify as current repairs within the meaning of sec. 30/31 of the Income-tax Act. Accordingly he disallowed Rs.357.62 lakhs referred above. The ld CIT(A) took the view that the assessee is required to maintain the properties and accordingly held that 70% of the amount may be considered as capital in nature and remaining amount may be considered as revenue in nature. Accordingly he confirmed the disallowance to the extent of Rs.2.50 crores.
We heard the parties and perused the record. The assessee placed reliance on various case laws to submit that the expenditure incurred on repairs and maintenance of building & plant and machinery is revenue in nature. The ld AR submitted that the assessee has furnished details of repairs and maintenance before the AO, but the AO has confirmed the disallowance without examining the same.
The ld DR submitted that the assessee has furnished simply the details of expenditure without specifying the nature of work carried out by the assessee.
Having heard the rival contentions, we are of the view that this issue requires fresh examination at the end of the AO, since the nature of work carried on by the assessee would determine the character of the expenditure. If the expenditure has resulted in creations of new asset, undisputedly the same shall be treated as capital expenditure. On the contrary, if the expenditure has been incurred to maintain/replace an existing asset, then the same may be treated as revenue expenditure. We notice that the assessee has furnished the details of expenditure, but did not furnish the details of nature of expenditure, which shall determine the character of expenditure. Accordingly, as stated earlier, this issue requires to be examined at the end of AO. Accordingly, we set aside the order passed by ld CIT(A) on this issue and restore the same to the file of the AO. Since the Revenue has not challenged the decision rendered by the ld CIT(A), the relief granted by the first appellate authority shall remain intact.
The next issue relates to rejection of claim of the assessee made before Ld CIT(A) for setting of loss suffered in passenger service fee/service component against the business income.
The facts relating to the above said issue is discussed in brief:- The assessee has collected passenger service fee (security component) from the Airlines on behalf of Govt. of India. According to the assessee, the amount so collected is held by the assessee in fiduciary capacity and is used by it for prescribed purposes like payment of salary to security personnel etc. After incurring prescribed expenditure out of the funds so collected, the assessee suffered a loss of 77.18 lakhs during the year under consideration. The assessee did not claim the same as deduction in the return of income filed by it and hence there was no occasion for the AO to examine this aspect. However, before Ld CIT(A), the assessee claimed that the above said loss should be allowed as deduction while computing business income of the assessee. The ld CIT(A), however, dismissed the said claim of the assessee by holding that the assessee could make additional claim only by filing revised return of income as held by Hon’ble Supreme Court in the case of Goetze (India Ltd.) Vs. CIT (2006)(284 ITR 323).
We have heard the parties on this issue and perused the record. We noticed that the claim of the assessee has not been examined by the AO, since the said claim was made for the first time before the ld CIT(A) by the assessee. Though the decision rendered by Hon’ble Supreme Court in the case of Goetze India Ltd., (Supra) stated that the additional claim can be made by filing a revised return only, yet the Hon’ble Supreme Court has made it clear that the same will not impinge upon the power of the Tribunal to admit additional claims. Accordingly, we admit the claim of the assessee. Before us, the ld AR furnished a copy of Order passed by Mumbai Bench of Tribunal in the case of Addl. CIT(A) Vs. Mumbai International Airport Ltd., in wherein it was held that the surplus arising in passenger service fee is not liable to taxed. The ld AR submitted that, by applying the same analogy, the assessee may not be entitled for deduction of loss suffered under this head, but sought an opportunity to explain its stand before AO. Since this issue has not been examined by the AO, we deem it proper to restore it to the file of the AO for examining it afresh. Accordingly, we set aside the order passed by ld CIT(A) on this issue and restore the same to the file of the AO.
The next issue relates to disallowance of Community development expenses of Rs.326.94 lakhs.
The AO, on noticing that the assessee had claimed Rs.326.94 lakhs towards community development expenses, asked the assessee to explain the nature of expenditure. It was submitted that the assessee has incurred a sum of Rs.221.34 lakhs through M/s GMR Varalaskhmi Foundation and the remaining amount of Rs.101.31 lakhs was incurred directly. It was submitted that these expenses were incurred on community development of nearby villages around airport area, which needs to be developed for the purpose of development of Airport business. Accordingly it was claimed that the above said expenditure was allowable u/s 37(1) of the Act.
The AO noticed that M/s GMR Varalaskhmi Foundation is a charitable organization registered under the Income-tax Act. The AO took the view that an amount of Rs.221.34 lakhs paid to GMR Varalaskhmi Foundation is in the nature of donation and accordingly disallowed the same. The AO also disallowed the remaining amount of Rs.105.60 lakhs. Considering the same as capital in nature and further holding that the same was not incurred wholly and exclusively for the purpose of business of the assessee. The ld CIT(A) confirmed the disallowance by holding that a) The amount spent by the assessee is in the nature of corporate social responsibility activities and hence the same is in the nature of application of income. b) The assessee has not furnished any cogent evidence to substantiate its claim that the expenditure so incurred has facilitated its business operations. c) The amount of Rs.221.34 lakhs paid to GMR Varalaskhmi Foundation is in the nature of donation and further no details have been furnished with regard to actual utilization of funds by the above said foundation. d) The nature of utilization of amount spent directly by the assessee is also not clear from the details furnished.
The ld AR submitted that the assessee has incurred all these expenditure for development of villages around the airport. The details of expenditure are furnished at pages 448 and 449 of the paper book. The ld AR further submitted that the assessee had engaged the charitable organization named GMR Varalaskhmi Foundation to carry out the activities through it. Hence the payment made to the above said charitable organization is in the nature of reimbursement and the same cannot be considered as donation paid by the assessee to the above said organization. The ld AR submitted that the CIT(A) has placed reliance on the amendment brought out by Finance Act (No.2 Act 1998) w.e.f 1/4/2015 by inserting explanation 2 to sec. 37, wherein it has been provided that the expenditure incurred by the assessee on the activities relating to corporate social responsibility shall not be deemed to be expenditure incurred by the assessee for the purpose of business. He submitted that the above said amendment shall be applicable from asst. year 2015-16 only. He submitted that the jurisdictional high court has held in the case of CIT Vs. Infosys Technologies Ltd., (2014) 43 taxmann.com 251 has held that the expenditure incurred by assessee on installation of traffic signals at various parts of the city in order to secure free movement of its employees so that they reach office in time, shall be allowable as business expenditure, even if the amount so spent forms part of its corporate responsibility. He further submitted that The Hon’ble Karnataka High Court has held in the case of CIT Vs. Karnataka Financial Corporation (2010) 326 ITR 355 that the amount spent by the assessee towards misc. expenses on development of infrastructural facilities of villages and construction of a new market to organize social group is allowable as revenue expenditure, as the assessee could lent the loan only when such establishments were there in the villages.
We heard the ld DR and perused the record. From the details furnished by the assessee at page 448 and 449 of the paper book, we noticed that the assessee has incurred various expenses for police station located in near the airport, development of electrical lines, installation of road traffic signals, construction of pedestal and column for statue, construction of urinals at bus stand etc. These expenses have been incurred directly. The nature of expenditure incurred on Statue is not furnished. Further, a sum of Rs.220.00 lakhs has been given to GMR Varalaskhmi Foundation. We have noticed that the AO has mentioned the amount paid to above said organization as Rs.221.36 lakhs. Hence, there appears to be some obscurity 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 M/s 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 the instant case, 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 decision rendered by Hon’ble Karnataka High Court referred (Supra).
The last issue relates to disallowance of payment made towards delayed deposit of service tax and VAT by treating the same as penalty in nature.
The assessee claimed a sum of Rs.8.63 lakhs as penalty but did not disallow the same. The AO examined the details of penalty expenses and noticed that the same included a sum of Rs.1.44 lakhs, being the interest paid on delayed deposit of service tax and VAT. The AO disallowed the same, apparently by treating the same as penalty. The ld CIT(A) confirmed the same by following the decision rendered by Hon’ble Supreme Court in the case of Bharath Commerce & Industries Ltd., Vs. CIT 230 ITR 733.
Before us, the ld AR placed reliance on the decision rendered by Hon’ble Gujarat High Court in the case of CIT Vs. Kaypee Mechanical India Pvt. Ltd., 45 taxmann.com 363 and also decision rendered by Hon’ble Supreme Court in the case of Lakmandas Maturdas Vs. CIT 122 taxmann.com 828 and submitted that the interest paid for delayed remittance of service tax is compensatory in nature and hence allowable as deduction u/s 37(1) of the Act. He submitted that the similar view has been taken by the Delhi Bench of Tribunal in the case of DCIT Vs. Messee Dusseldorf India (P) Ltd., page (2010) 129 TTJ 81 (Delhi)/(UO).
We have heard ld DR and perused the record. We noticed that the ld CIT(A) has confirmed the disallowance by following the decision rendered by Hon’ble Supreme Court in the case of Bharat Commerce and Industries Ltd., (Supra). However, a perusal of the said decision would show that the Hon’ble Supreme Court has dealt with the case of payment of interest under the Income-tax Act. It was held that if the Income-tax itself is not permissible deduction u/s 37, then any interest paid for default committed by the assessee in discharging the statutory obligation under the Income-tax Act, which is calculated with reference to Income-tax, cannot be allowed as deduction.
The issue under consideration is related to interest paid delayed payment of service tax. There is no dispute that the amount paid as service tax is allowable as deduction. Hence the decision rendered by Hon’ble Supreme Court in the case of Bharath Commerce and Industries Ltd., (Supra), will not apply to the facts of the present case. On the contrary, the claim of the assessee gets support from decision rendered by Hon’ble Supreme Court in the case of Lakmandas Maturdas (Supra)) and Hon’ble High Court in the case of Kaypee Mechanical India Pvt. Ltd., (Supra). Accordingly, we set aside the order passed by ld CIT(A) and direct the AO to delete the disallowance of interest paid on delayed remittance of service tax and VAT.
In the result, the appeal filed by the assessee is treated as allowed for statistical purposes.
Order pronounced in the Open Court on 10th July, 2019.