THEDCIT, COCHIN vs. M.S COCHIN INTERNATIONAL AIRPORT LTD, COCHIN

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN

Before Shri SATBEER SINGH GODARA, JUDICIAL MEMBER AND Shri AMARJIT SINGH, ACCOUNTANT MEMBER

ITA Nos. 166, 167, 193 & 304/Coch/2017 Assessment Years: 2010-11 to 20120-13 & 2007-08

Cochin International DCIT, Circle 1(1), Airport Ltd. GCDA Range 1 vs. Commercial Complex Kochi Marine Drive, Kochi. PIN - 682031 PAN: AAACC9658B (Appellant) (Respondent)

For Revenue : 22.08.2024 Date of Pronouncement : 23.10.2024

ORDER PER BENCH :

The instant batch of four Revenue’s appeals pertains to a

single assessee herein, i.e. Cochin Interntional Airport Ltd. All other

related details stand tabulated hereunder: -

Sr. ITA No. AY Appeal Reference No. Order date No. 1 166/Coch/2017 2010-11 ITA No. 33/R-1/EKM/ 07.02.2017 CIT(A)-II/2013-14 2 167/Coch/2017 2011-12 ITA No. 51/R-1/ CIT(A)- 27.02.2017 II/2014-15 3 193/Coch/2017 2012-13 ITA No. 76/R-1/EKM/ 28.02.2017 CIT(A)-I/2015-16 4 304/Coch/2017 2007-08 ITA No. 25/R- 31.03.2017 1/E/CIT(A)-II/2012-13

2 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. We proceed assessment year-wise for the sake of

convenience and brevity.

ASSESSMENT YEAR 2007-08 :

following substantive grounds : -

“1. The orders of the Commissioner of Income Tax (Appeals)-1,

Kochi opposed to the facts and circumstances of the case.

Commissioner of Income Tax(Appeals) is not justified in

directing the AO to delete the addition of Rs.71,07,988/-

being the bad debt which are not actually written off in

books. 36(1

3 The learned CIT(Appeals) is not justified to deleting the

addition of Rs.17,70,00,000/- made on account of royalty

and other charges receivable from Air India

4 The conclusion of the learned CIT(Appeals) in this regard

not being just and proper deserves to be vacated.

3 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. 5. It is prayed that the orders of the learned Commissioner of

Income Tax(Appeals)-1, Kochi be reversed and that of the

Assessing Officer restored.

of hearing, it is requested that the order of the

Commissioner of Income Tax(Appeals) may be set aside and

that of the Assessing Officer restored.”

hearing that the CIT(A) herein is erred in law and on facts in deleting

the bad debt disallowance of Rs.71,07,988/- which is only in the

nature of a provision. He could hardly dispute the clinching fact that

even the learned Assessing Officer’s corresponding assessment in

para 2 nowhere raised such an issue of capital write off. We make it

clear that we are dealing with an assessment framed u/s. 143(3)

r.w.s. 263 of the Income Tax Act, 1961 (the Act) wherein the learned

revisionary authority had extracted its jurisdiction only for the

purpose of computation of net profit so as to finalise the book profit

u/s. 115JB(2) of the Act. We conclude that within the given facts,

there is no issue of actual write-off in principle. Rejected accordingly.

4 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. 4. Lastly comes the Revenue’s latter substantive ground

seeking to add an amount of Rs.17.70 crores representing royalty and

other charges receivable from M/s. Air India Ltd..

facts on record that the assessee had already added the same in it’s

computation [para-ii at page-13 of the lower appellate discussion].

That being the case we see no substance in Revenue’s instant latter

substantive ground. This appeal ITA No.304/Coch/2017 is

dismissed.

three appeals ITA No. 166, 167 and 193/Coch/2017 for assessment

years 2010-11 to 2012-13 respectively. Its identical first and foremost

substantive ground herein challenges the assessee’s eligibility for

raising section 80IA deduction claim. We find during the course of

hearing the instant issue of the assessee section 80IA deduction

claim is no more res integra as the tribunal’s order dated 21.11,.2019

for preceding AY 2005-06 onwards has rejected the very contentions.

We wish to clarify that there is distinction pinpointed in the pleadings

of the Revenue so far as the relevant facts in these assessment years

5 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. stand on identical footing. We accordingly find no substance in

Revenue’s instant first and foremost substantive ground. Rejected

accordingly.

authority’s action excluding various items of receipts, i.e. surcharge

from prepaid taxi, sale of scrap, notice pay, interest on delayed

payment bond from staff as business income eligible for deduction

u/s. 80IA(4) claims, involving varying sums, in all these three

assessment years. We find that the earlier coordinate bench’s order

has already dealt with the same as while accepting the assessee’s

contentions. Rejected accordingly.

2,3,7 and 8; assessment year-wise, respectively that the CIT(A) has

erred in law and on facts in treating the assessee eligible for claiming

section 80IA(4) regarding income qua “Passenger service fee-security

component”. We note that the CBDT has also issued a circular dated

30.06.2008 that such an income indeed forms regular business

income “derived” from the eligible activity(ies) only. That being the

case, and in light of the fact that there is a “revenue” item in

6 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. assessee’s books to this effect we feel the same indeed qualifies

section 80IA deduction. Rejected accordingly.

grounds; assessment year-wise, respectively seeks to treat the

interest on passenger service fee deposit as assessee’s taxable income

in the corresponding assessment years. We do not see any material in

the case which could indicate that the impugned interest income

have been accrued or received in assessee’s book so as to treated as

taxable. We accordingly see no merit in Revenue’s instant substantive

ground.

the issue of section 36(1)(va) disallowance on the ground that the

assessee ought to have credited the employees’ contribution to PF &

ESI within the specified due date under the corresponding statute

than going by the “due” date of filing the return u/s. 139(1) of the

Act. Suffice to say, case law Checkmate Services (P) Ltd., vs. CIT

[2022] 143 taxmann.com 178 (SC) has already decided the instant

issue in department’s favour and against the assessee. Allowed

accordingly.

7 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. 11. Learned CIT-DR further submits that the learned CIT(A) has

erred in law and on facts in AY 2011-12 and AY 2012-13 in reversing

the disallowance made u/s. 14A of the Act in relation to the

assessee’s exempt income; vide following detailed discussion :-

“vv) The next dispute (Ground Numbered 5) relates to the

(notional expenditure) amount of Rs.75,70,210/- computed

under Rule 8D that was assessed by the AO as the

Appellant's taxable income. On facts, the interest cost of

Rs.3,65,54,015/- debited and claimed by the Appellant in

its Profit and Loss Account are determined to be towards: a)

Land Acquisition compensation amounts, b) short term

working capital loans; and b) paid to KSIDC on Term loan

taken for setting up of Golf Course and Country Club, which

are specific items and have no bearing on the investments

made by the Appellant in its sister concerns being Cochin

International Aviation Services Limited and Air Kerala

International Services Limited totaling Rs.35,31,34,000/-

and Rs.1,06,40,000/- respectively. Also, all the investments

being made in earlier financial years, there were no fresh

8 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. investments during the year. The Appellant also had enough

interest free surplus funds available for making the

investments and no borrowed funds have been utilized for

the purpose of investments in subsidiary companies. The

interest free surplus/capital funds stood at Rs 399.92 crores

as at 31.03.2010 whereas the value of investments made

were only Rs 35.31 crores, viz, less than 10% of the former

amount.

ww) It cannot therefore prima facie be held that the Appellant

had been making investments that took and kept away

large portions of its business funds towards earning tax-

exempt incomes. A separate discussion is that of whether

the investments have been made with strategic as against

narrow business intent/purpose. A strategic investment is a

transaction that is closely related to joint ventures and in

which one company makes an investment in another after

the two companies enter into agreements that are designed

to serve shared business goals. The planners of such

transactions decide on a strategic investment when they

9 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. believe that the investment is not merely directed towards.

financial goals, but also broader business or strategic goals.

There is nothing preventing the Appellant from taking a

business decision of parking some of its interest-free and

after-tax funds in making investments or lending interest-

free advances to its sister concerns, when these funds are

not required to meet working capital needs or immediate

business/financial goals or exigencies. In any event, there is

nothing shown by the AO that the investments made in

earlier financial years are non- business in nature. The

Memorandums of Association (MOA) of most companies

allow satellite objects of dealing with tax-free funds in

manners considered desirable by the management, which

may include financial and tax-planning devices like short-

term parking of funds in dividends-earning investments.

xx) In the case of CIT v. Walchand and Co. (R) Ltd. (1967) 65

ITR 381 (SC), the Hon'ble Supreme Court held that if the

expenditure is wholly incurred for the purpose of business of

the assessee, there was no reason to disallow any portion of

10 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. the interest expenditure on imaginary reasons. The

judgment dated 08.08.2011 of the Hon'ble Bombay High

Court in K. Raheja Corporation Pvt. Ltd. in Income Tax

Appeal No. 1260 of 2009, held that when investments are

made out of the assessee's own funds and not out of

borrowed funds, no disallowance can be made on account of

interest expenditure under section 14A. From these and a

conspectus of several other judicial ratios held by the

Hon'ble Courts and Tribunals, it is clear that the Appellant

cannot be prevented, u/s 14A or u/s 2(22)(c) or u/s 36(1) (iii)

r.w.s 37 of the Act, from making interest-free advances from

out of interest- free funds, if such payments are made

towards business purposes and if such payments have been

made towards specified intents.

yy) The following represent the statutory positions for the

impugned A.Y. 2011-12 :

(i) Section 14A of the Act provides for the disallowance of

expenditure incurred in relation to the earning of

exempt incomes. Where the Tax Officer is not satisfied

11 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. with the taxpayer's claim with respect to determination

of amount liable for disallowance under section 144,

Rule 8D of the Income-tax Rules provides for the

mechanism to determine the quantum of such

disallowance.

(ii) In terms of the provisions of Rule 8D, the amount to be

disallowed shall be the aggregate of (i) expenses

directly incurred to earn exempt income, (ii) interest

expense (not directly attributable to any exempt

income) worked out on the basis of a prescribed

formula; and (iii) 0.5% of the average value of

investments yielding exempt income.

(iii) Rule 8D was introduced by the Income Tax (Fifth

Amendment) Rules 2008 with prospective effect from

24th March 2008 vide Notification No. 45/2008 for

computation of disallowance u/s 14A of the Act by the

AO subject to his/her satisfaction with the correctness

of the claim (or no claim) by an assessee.

12 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. [NB: It may be noted that the Central Board of Direct Taxes

(CBDT) vide notification no. 43/2016 dated 2 June, 2016,

has amended Rule 8D. In the same, the formula specified in

relation to indirect interest expenditure has been deleted.

Accordingly, indirect interest expenses will not be

disallowed in future Assessment Years. The amendment has

been brought about based on the recommendations of the R.

V. Easwar Committee (constituted vide CBDT's Notification

No. A. 50050/112/ 2015-Ad.I dated 27 October 2015) in

that the second limb of method of computation and the

resultant figure of disallowance that deals with the interest

expenditure in certain cases are unfair to the assessee as

the resulting disallowance of interest exceeds the actual

unallocated interest expenditure and allocated interest

expenditure towards the income not forming part of total

income. Although not directly retrospectively applicable here,

this recent change is supportive of the position of the

Appellant].

13 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. zz) From the facts, figures and averments provided by the

Appellant, there is no incontrovertibly proven nexus between

the interest-bearing funds borrowed by the Appellant and

the impugned investments. The ratio of the Hon'ble Supreme

Court in the case of CIT vs. Walfort Share &Stock Brokers:

[2010] 326 ITR 1 (SC), wherein it was held by the Apex

Court that there must be a proximate relationship of

expenditure with exempt income for the purposes of making

disallowance of same u/s 14A of the Act is relevant and

applicable. The AO's arguments (if they may be considered

to amount to such) amount to that Section 14A of the Act

disallowed all expenditure related to the investments which

generated tax-exempt incomes. The AO ought to have

considered the position that before applying Rule 8D in

computing the disallowance, the basic provisions of Section

14A were be considered (viz. substantive law ahead of

procedural law). Rule 8D is only an instrument to apply

Section 14A Substantive law precedes and overrides

14 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. procedural law. If an amount is not to be disallowed and

taxed u/s 14A of the Act then Rule 8D cannot be invoked.

aaa) The AO's approach in making the disallowances is

mechanical and superficial and appear to be based on

nothing but surmise and conjecture. There is on the facts of

the instant case nothing to show that any interest-bearing

loans have been employed to earn the exempt dividends or

to make investments that generated such dividends. The

loans obtained by the Appellant are seen to be towards

other specific purposes which are directly attributable to its

taxable profits-generating business operations. There is no

material on record or link to show that the tax-exempt-

dividends-earning investments were made out of any

borrowed funds. The Appellant has been able to show that

the investments were made from tax free funds owing to

surplus capital that needed to be parked in productive

assets (the mutual funds). Moreover, the parking is seen to

be not with any long-term strategic intent that deviates from

the business objectives or purposes of the Appellant. No

15 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. expenses have been shown by the AO to be incurred,

towards the earning of the dividend incomes.

bbb) If the AO wished to make a disallowance u/s 14A of the Act,

a detailed comparison on a day-to-day basis needed to be

made between the entering interest-bearing funds and the

outgoing tax-exempt- earning investments, to show that any

item or installment of loans obtained had been invested in

dividend-earning destinations owing singularly because of

the lack of tax-free funds being reserves and surpluses.

Besides the fact that the AO has not carried out such an

exercise to establish the due and legally vital nexus, there is

little likelihood in the instant case, owing to the magnitude of

the resources being the tax-free funds at the Appellant's

command and the demonstrated sources of the funds flow

into the impugned investments being the proceeds from

allotment of Equity Shares, that such an effort would

unearth anything adverse against the Appellant. The tax-

free reserves available to the Appellant on 31.03.2010 are

sufficient to cover the investments. The AO appears to have

16 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. made little effort to consider or counter or disprove any of

facts available on record. There hence appear to be no facts

unearthed by the AO to show that the interest amounts

expended by the Appellant have been employed even

through the remotest of relationships or connecting umbilicus

towards earning/receiving tax exempt dividend incomes.

ccc) Section 14A is a "negative" "disallowance' provision and not

a positive, charging, "addition' provision. Before invoking it,

the AO needed to confirm that the impugned expenditure

must have been claimed as a deduction in the first place,

because what has not been claimed as deduction cannot be

disallowed. There also needed to exist a proximate

relationship between the expenditure and the exempt

income. The ratio of the Hon'ble Punjab and Haryana High

Court in the case of CIT v. Hero Cycles Ltd [2010] 323 ITR

518 (P&H) (HC) is applicable.

ddd) The decision of the Division Bench of the Hon'ble Delhi High

Court in the case of Maxopp Investments vs. Commissioner

of Income-tax on8.11.2011 in ITA 687/2009 too is

17 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. applicable, wherein the Hon'ble High Court, while approving

the contention raised by the assessee that the term

"expenditure incurred" appearing in section 14A(1) of the Act

would mean "actual expenditure incurred, held that no

disallowance could be made under the said Section when no

expenditure had 'actually' been incurred by the assessee in

relation to the earning of the exempt income. Attention is

also invited to the decision of the Hon'ble Punjab & Haryana

High Court in the case of CIT v. Metalman Auto P. Ltd.:

[2011] 336 ITR 434 (P & H). The relevant observations are in

favour of the Appellant's contentions.

eee) The decision of the Delhi Bench of the Income Tax Appellate

Tribunal in the case of ACIT v. HCL A Comnet Ltd.: ITA No.

322 and 2583/Del/2012 [Assessment Years 2007-08 and

2008-09], wherein the ITAT, following the decision of the

Hon'ble Punjab and Haryana High Court in the case of Hero

Cycles (supra), held that interest paid in connection with

loans having no nexus with investments giving rise to

exempt income cannot be disallowed under Section 14A

18 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. read with Rule Rule 8D. The decisions of the Kolkata and

Chennai Benches of the ITAT in the cases of ITO vs. Narain

Prasad Dalmia: ITA No. 1180/K/2011 for the AY 2008-09

and ACIT v. Best & Crompton Engg Ltd. ITA

No.1603/Mds/2012 for the AY 2009-10 too are applicable.

fff) On the debate that no disallowance on account of interest is

called for when the Appellant was having its own sufficient

funds to make investments, it may be noted that it becomes

necessary for an assessee to prove on facts that

investments have been made out of his own funds. In case

an assessee is able to prove on the basis of his facts that

investments have undoubtedly been made out of own funds

and no borrowed funds have been utilized, there would no

case of disallowance. In the instant case, such evidence is

on record, which the AO has failed to gauge, analyze

appreciate and/or accept. A controversy, however, arises in

those circumstances involving the presence of mixed funds

The following decisions of the Hon'ble Supreme Court and

High Courts hold that in the context of Interest free loans

19 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd.

given to sister concerns, where an assessee has owned

funds that exceed interest free loans it should be presumed

that interest free loans have been given out of own funds

and no disallowance of interest is called for :

i. Munjal Sales Corpn. Vs. CIF [2008] 168 Taxman 43 (5C) ii. CIT vs. Reliance Utilities & Power Ltd. [2009] 178 Taxman 135 (Bom.); iii. CIT vs. Tin Box Co. [2004] 135 Taxman 145 (Delhi) iv. CIT vs. Motor Sales Ltd. [2008] 304 ITR 123 (All) v. CIT vs. Bharti Televenture Ltd. [2011] 200 Taxman 39 (Mag)/11 taxmann.com 356 (Delhi) vi. K. Industries Ltd. v. CIT [2011] 11 taxmann.com 72 (Cal.) (vi); vii. CIT vs. Indian Sugar Exim Corpn. Ltd. [2012] 206 Taxman 242/19 taxmann.com 158 (Delhi).

In the light of the aforesaid legal position the Appellant can

well argue that since it had sufficient owned and interest-

free funds to make investments during the impugned F.Y.

2008-09, even if he is not able to match entries of

investments to interest free funds, no disallowances on

account of interest are called for.

20 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd.

ggg) In several cases, the view has been taken by the Hon'ble

High Courts and the Tribunals that no disallowance is called

for where the assessee has made investments out of his

own funds or the own funds available with the assessee are

quite sufficient to make investments which have given rise to

exempt income. In this regard following decisions can be

referred to:

i. CIT v. Winsome Textile Industries Ltd. [2009] 319 ITR 204 (Punj. & Har.). ii. CIT v. Suzion Energy Ltd. [Tax Appeal No. 223 of 2013, dated 3-4- 2013] (Guj.) iii. CIT v. K. Raheja Corpn. (P.) Ltd. [IT Appeal No. 1260 of 2009, dated 8- 8-2011] (Bom.) iv. Yatish Trading Co. (P.) Ltd. v. Asstt. CIT [2011] 129 ITD 237/9 taxmann.com 164 (Trib.)(Mum.) v. Maruti Udyog Ltd. v. Dy. CIT [2005] 92 ITD 119 (Trib.) (Delhi.) vi. Paranjape Autocast (P) Ltd. v. Dy. CIT [IT Appeal Nos. 1090 & 1091 (Trib) (Pune) of 2010, dated 25-6-2012] vii. ITO v. Strides Arcolab Ltd. [2012] 138 (TD 323/24 taxmann.com 89 (Trib.)(Mum.) viii. Yamuna Prasad Peshwa v. Dy. CIT [IT Appeal No. 416 (Trib.) (Jodh.) of 2009, dated 9-12-2011]

21 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. ix. Dy. CIT v. Maharashtra Seamless Lad. [2011] 48 SOT 160 (URO)/16 taxmann.com 97 (Trib.) (Delhi) x. Balarampur Chini Mills Lad v. Dy. CIT [2012] 20 taxmann.com 117 (Trib.) (Kol.)

hhh) The Bombay High Court in the case of HDFC Bank Lid vs.

DCIT 2(3), Mumbai & Ors (in its decision dated 25.02.2016)

observed that the presumption that the investment in tax-

free securities is made from the taxpayers own funds if the

funds are in excess of the securities applies to section 14A of

the Act. Such a presumption would apply notwithstanding

the fact that the tax payer concerned may also have taken

some funds on interest. The same decisions were held by

the Hon'ble Bombay High Court in the case of CIT vs

Reliance Utilities and Power Ltd (2009) 313 ITR 340 (Bom.)

and by the Hon'ble Karnataka High Court in the case of CIT

v Microlabs Ltd (2016) 383 ITR 490 (Kar.).

iii) The decision of the Hon'ble Bombay High Court in the case

of Godrej & Boyce M. Co, Lil Ya DCIT (2010) 328 ITR 81

(Bom.) held that Rule 8D r.w.s S. 14A (2) is not arbitrary or

unreasonable but can be applied only if the assessee's

22 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. method was found to be not satisfactory, is considered. In

the said decision, the Hon'ble Court in the said case also

observed that in the light of the decision of the Hon'ble Apex

Court in the case of Walfort Shares & Stock Brokers (supra),

the disallowance under section 14A could be effected only

when a proximate cause for disallowance was established.

In the instant case, the relationship of the disputed

expenditure with the tax exempt income remains to be

proved. The AO appears to have acted on presumptions,

conjectures and surmises, and wrongly interpreted in the

impugned assessment order the said decision in support of

his position. The decision of the Hon'ble Bombay High above

also held that expenditure incurred in relation to exempt

income can be disallowed under section 14A of the Act only

if the AO is not satisfied with the correctness of the

expenditure claimed by the assessee. The Hon'ble Court

further also went on to hold that if the assessee claimed that

no expenditure has been incurred to earn the exempt

income, no disallowance under that section could be made

23 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. unless the AO, on the basis of cogent material on record,

records a satisfaction that the submissions made by the

assessee were not correct. No disallowance under that

section could be made by the AO in the absence of such

recording of satisfaction. The decision in the case of REI

Agro v. DCIT; ITA No. 1331/Kol/2011 for the A.Y. 2008-09

of the Kolkata Bench of the ITAT too is seen to be on similar

lines.

jjj) The ratios offered by the Appellant in support of its position

are along the same lines as above and supplement the

Appellant's case and cause in the instant Appeal. From a

consistent reading of all these judicial ratios, what emerges

is that for making a disallowance u/s 14A r.w.r 8D:

(i) A clear, actual proximate cause for disallowance, which

is the relationship of the expenditure with the tax

exempt income needs to be proved or established;

(ii) Actual expenditure towards the earning of the tax-

exempt Dividend incomes must have been incurred;

24 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. (iii) The AO, on the basis of cogent material on record,

needs to record his satisfaction that the submissions

made by the assessee are not correct;

(iv) The interest-free owned funds of the Appellant are not

in excess of the tax-exempt-income- generating

investments made, which exception would hold even if

the funds of the Appellant consisted of mixed (interest-

bearing and interest-free) funds;

(v) Positive (actual) Dividend incomes must have been

earned;

kkk) It is seen that the intersection of all of the above established

judicial positions that prevent any disallowance u/s 14A

r.w.r 8D apply in favour of the Appellant in the instant case.

In respect of judicial position (iii), it can be noted that the

AO's comments are generic in that he has recorded his

surmise/conjecture that the Appellant may have incurred

expenses attributable to the earning of exempt incomes

being dividends (which do not exist) from investments (that

have not been made during the impugned financial year)

25 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. and that such imagined expenses have not been attributed

and/or disallowed by it. He has not specifically shown with

the support of evidences that any such incurrence or

consequent non-attribution has taken place. There is hence

no cogent material on record to draw the inferences and

conclusions the AO has drawn. The AO's action is

mechanical and without proper reason or responsibility in

that she has ignored and/or failed to consider salient and

important facts. Section 14A(3) which mandates such

satisfaction to be recorded in a case where an assessee

claims that no expenditure has been incurred by him in

relation to income which does not form part of the total

income under this Act has thus not been correctly

understood or applied by the AO. All of these overwhelm any

possible argument in favour of disallowance u/s 14A.

ll) All of the above submissions of the Appellant and judicial

pronouncements along the factual matrix and legal

provisions clearly show that no disallowance of the

impugned amount of Rs.75,70,210/- being interest

26 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. expenditure relating to exempt income was called for, for

any reason. In spirit and fairness, the CBDT's recent

Notification No. A.50050/112/2015-Ad.I dated 27 October

2015 too can be considered as indicative. The AO, by

mechanically applying Rule 8D, has acted on unstated and

as yet unfathomed presumptions, conjectures and surmises.

This action is unsustainable in law and the enhancement

made is hereby directed to be deleted. Ground Numbered 5

is allowed in favour of the Appellant.”

endeavour herein is to revive the proportionate interest expenditure

disallowance in assessee’s case relating to it’s exempt income. As

against this, learned CIT(A) has recorded a categoric finding that the

assessee had nowhere utilized it’s interest bearing funds in making

exempt income yielding actual exempt income in the relevant

previous year(s) which is nowhere disputed in the corresponding

substantive grounds. We conclude in these facts that once the

assessee had already proved to have utilized it’s interest free funds,

27 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. no proportionate interest could be disallowed in sec.14A read with

Rule-8D as per above judicial precedents. Rejected accordingly.

AY 2012-13 seeks to reverse the CIT(A)’s identical, action deleting the

assessee’s depreciation disallowance claim qua its golf course under

the head “plant and machinery”. Learned A.R. not only drew strong

support from the CIT(A)’s detailed discussion but also produced this

tribunal’s coordinate bench’s order in Landbase India Ltd. vs. ACIT

[2020] 185 ITD 40 (Delhi) (Tribu.). Mr. Gopi takes as to para 6 therein

that the hon'ble Gujarat high court had also accepted similar issue

therein rejecting the department’s submission and hold that such

plant and machinery is indeed entitled for depreciation. We find that

their lordships had come across the corresponding depreciation claim

relating to an oil rig, which was treated as a “well” i.e., only a

building, than “plant and machinery”, up-to the tribunal in Niko Oil

Resources vs. ACIT [2017] 395 ITR 301 (Guj.) as under :

“2. While admitting the matter on 11.01.2010, the following

substantial question of law was framed by the Court for

consideration :—

28 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. "(i) Whether, in the facts and under the circumstances of the

case the Income Tax Appellate Tribunal was right in law in

treating the mineral oil wells as Buildings for the purpose of

applying rate of depreciation under Section 32 of the Income

Tax Act?"

S.N. Soparkar has submitted that the Tribunal has erred in

restricting the alternate claim of depreciation made by the

assessee without prejudice to its principal claim under Section 42

of the Act. It is further submitted that the Tribunal has erred in

restricting the claim of depreciation only @ 10% against 100%

allowed by CIT(Appeals) by treating the oil wells as buildings. It is

next contended that the Tribunal has erred in not appreciating

that the mineral oil wells can never be equated with the buildings

and therefore its action of applying the rate of depreciation of

buildings to the mineral oil wells is illegal and cannot be

sustained in law.

3.1. Learned Senior Counsel Mr. S.N. Soparkar has taken

us to the orders of the Assessing Officer, CIT (Appeals) and the

29 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. Tribunal and has contended that building a well forms a

mandatory part for drilling of the oil and therefore, the same was

constructed and this aspect has not been considered.

3.2. Learned Senior Counsel for the appellant has relied on

the decision of the Hon'ble Supreme Court in the case of Scientific

Engg. House (P.) Ltd. v. CIT [1986] 157 ITR 86/[1985] 23 Taxman

66 (SC) and more particularly on paragraphs 10, 11 and 12 which

reads as under :—

'10. The next question is whether the acquisition of

such a capital asset is depreciable asset or not? Under

section 32 depreciation allowance is, subject to the

provisions of section 34, permissible only in respect of

certain assets specified therein, namely, buildings,

machinery, plant and furniture owned by the assessee and

used for the purpose of business while section 43(3) defines

'plant' in very wide terms saying "plant includes ships,

vehicles, books, scientific apparatus and surgical

equipments used for the purpose of the business". The

question is whether technical know-how in the shape of

30 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. drawings, designs, charts, plans, processing data and other

literature falls within the definition of 'plant'.

expression 'plant' should be given a very wide meaning and

reference was made to a number of decisions for the purpose

of showing how quite a variety of articles, objects or things

have been held to be 'plant'. But it is unnecessary to deal

with all those cases and a reference to three or four

decisions, in our view, would suffice. The classic definition of

'plant' was given by Lindley, L.J.

in Yarmouth v. France, [1887] 19 Q.B.D. 647, a case in

which it was decided that a cart-horse was plant within the

meaning of section 1(1) of Employers' Liability Act, 1880. The

relevant passage occurring at page 658 of the Report runs

thus :-

"There is no definition of plant in the Act: but, in its

ordinary sense, it includes whatever apparatus is used

by a business man for carrying on his business - not

his stock-in-trade which he buys or makes for sale; but

31 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. all goods and chattels, fixed or movable, live or dead,

which he keeps for permanent employment in his

business"

In other words, plant would include any

article or object fixed or movable, live or dead, used by

businessman for carrying on his business and it is not

necessarily confined to an apparatus which is used for

mechanical operations or processes or is employed in

mechanical or industrial business. In order to qualify

as plant the article must have some degree of

durability, as for instance, in Hinton v. Maden &

Ireland Ltd., 39 I.T.R. 357, knives and lasts having an

average life of three years used in manufacturing shoes

were held to be plant. In C.I.T. Andhra Pradesh v. Taj

Mahal Hotel, 82 I.T.R. 44, the respondent, which ran a

hotel installed sanitary and pipeline fittings in one of

its branches in respect whereof it claimed development

rebate and the question was whether the sanitary and

pipe line fittings installed fell within the definition of

32 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. plant given in sec. 10(5) of the 1922 Act which was

similar to the definition given in Sec. 43(3) of the 1961

Act and this Court after approving the definition of

plant given by Lindley L.J. in Yarmouth v. France as

expounded in Jarrold v. John Good and sons

Limited, 1962, 40 T.C. 681 C.A., held that sanitary and

pipe-line fittings fell within the definition of plant.

Curle & Co. Ltd., 76 I.T.R. 62, the House of Lords held

that a dry dock since it fulfilled the function of a plant

must be held to be a plant. Lord Reid considered the

part which a dry dock played in the assessee

company's operations and observed :

"It seems to me that every part of this dry dock

plays an essential part....The whole of the dock is

I think, the means by which, or plant with which,

the operation is performed."

Lord Guest indicated a functional test in these words :

33 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. "In order to decide whether a particular subject is an

'apparatus' it seems obvious that an enquiry has to be

made as to what operation it performs. The functional

test is, therefore, essential at any rate as a

preliminary..."-

"In other words the test would be: Does the article fulfil

the function of a plant in the assessee's trading activity

Is it a tool of his trade with which he carries on his

business? If the answer is in the affirmative it will be a

plant."'

3.3. Reliance is also placed on the decision of the Hon'ble

Supreme Court in the case of CIT v. Dr. B. Venkata Rao [2000]

243 ITR 81/111 Taxman 635 and paragraphs 2 and 3 of this

decision reads as under :—

"2. The assessee is a medical practitioner. The

assessee is a medical practitioner. He runs a nursing

home. In respect of the building in which the nursing

home is run, the assessee claimed, for the asst. yr.

1983-84, that it was a "plant". His contention was

34 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. rejected by the ITO and by the CIT(A). The Tribunal

found to the contrary. Applying the functional test, it

held that the nursing home was a plant. The High

Court affirmed that view. It said that a building used

as a nursing home is not comparable with an ordinary

building having regard to the number of persons using

it, the manner of its use and the purpose for which it is

used. The building was used not only to house patients

and nurse them, but also to treat them, for which

various kinds of equipment and instruments were

installed.

delivered by the Allahabad High Court in S.K. Tulsi &

Sons v. CIT (1990) 90 CTR (All) 99 : (1991) 187 ITR 685

(All) : TC 29R.638. Reference was made to an earlier

judgment, where also the functional test approved by

this Court in several decisions was applied. It was held

that if it was found that the building or structure

constituted an apparatus or a tool of the taxpayer by

35 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. means of which business activities were carried on, it

amounted to a "plant"; but where the structure played

no part in the carrying on of these activities but merely

constituted a place wherein they were carried on, the

building could not be regarded as a plant."

3.4. In addition, learned Senior Counsel for the appellant has

referred to the decision of the Hon'ble Supreme Court in the case

of Asstt. CIT v. Victory Aqua Farm Ltd. [2015] 379 ITR 335/234

Taxman 598/61 taxmann.com 166 wherein Paragraphs 4 and 6

are reproduced hereunder :—

'4. It is not in dispute that if these ponds are

'plants', then they are eligible for depreciation at the

rates applicable to plant and machinery and case

would be covered by the provisions of Section 32 of the

Act. It is not even necessary to deal with this aspect in

detail with reference to the various judgments,

inasmuch as judgment of this Court in Commissioner of

Income Tax, Karnataka v. Karnataka Power

Corporation [2002(9) SCC 571] clinches the issue.

36 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. Therein the Court has taken into consideration the

earlier judgments on which some reliance was placed

by the learned counsel for the Revenue and are

suitably dealt with. The relevant portion of the said

judgment reads as under:

"5. It was the case of the assessee that it was

entitled to investment allowance as applicable to

a plant in respect of its power generating station

building. In a note filed before the Commissioner

(Appeals) it stated that it had included for the

purpose the value of its Potential Transformer

Foundation. Cable Duct System, Outdoor Yard

Structures and Tail Race Channel. It explained

that the process of generation started from letting

in water from the reservoir into the pen-stocks

and ducts which were the water conductor

system into the turbines. Once electricity had

been produced by generation, it had to be

conducted, as it was not possible to store the

37 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. same, and the process of generation continued

until the electricity was led to the transmission

tower. The water that was used for rotation of the

turbines had to be removed and this was done

through the Tail Race Channel. For stepping up

the electricity, transformers were used in the

outdoor yard. The conduction of the electricity

was through conductors held in ducts, called the

Cable Duct System, which were specifically

designed for the purpose. The case of the

assessee, therefore, was that all these were part

of the special engineering works that were an

essential part of a generating plant and, therefore,

it was entitled to have the same treated as a

plant for the purposes of investment allowance.

The Commissioner accepted the correctness of the

assessee's case. He held that it was clear that the

generating station buildings had to be treated as

a plant for the purposes of investment allowance.

38 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. These buildings could not be separated from the

machinery and the machinery could not be

worked without such special construction. He,

therefore, allowed investment, allowance on the

generating station, building, as claimed. The

Tribunal affirmed this finding, as, as, indeed did

the High Court.

fact recorded by the fact finding authority that the

generating station building is an integral part of

the assessee's generating system.”

from the CIT(A)’s order that he has not examined the instant issue in

detail as to whether the assessee’s golf course, forms part of it’s

airport business or not, which in turn, could be treated as part of

“plant and machinery”. We thus deem it as a fit case to be restored

to the learned CIT(A) for his afresh appropriate adjudication. We

make it clear that it shall be assessee’s risk and responsibility only

to plead and prove all relevant issues on facts as well as law in

39 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. consequential proceedings. This Revenue’s ground in both later

assessment years 2011-12 and 2012-13 succeeds for statistical

purposes.

years 2011-12 and 2012-13 herein plead that the CIT(A) has erred in

law and on facts in granting higher depreciation to the assessee @

50% involving maxi cab, motor cab, etc. We note in this factual

backdrop that the CIT(A) has not followed his order in AY 2010-11

and the Revenue appears to have accepted the same which has not

raised its corresponding substantive ground in its foregoing appeal

ITA No. 166/Coch/2017. Rejected accordingly.

CIT(A) ought to have upheld the Assessing Officer’s section 115JB

computation involving the passenger security fee and interest

thereon. We are of the considered view that once the assessee has

succeeded on the corresponding issue itself, the instant last

substantial ground raised at the Revenue’s behest stands rendered

academic. Rejected therefore.

40 ITA Nos. 166, 167,193 & 304/Coch/2017 Cochin International Airport Ltd. 17. To sum-up, the Revenue’s instant first and foremost appeal

ITA.No.166/Coch./2017 is dismissed. It’s latter three appeals

ITA.Nos.167, 193 & 304/Coch./2017 inter alia are partly allowed/

partly allowed/partly allowed for statistical purposes in above terms.

copy of this common order be placed in the respective case files.

Order pronounced in the open court on 23rd October, 2024.

Sd/- Sd/- (Amarjit Singh) (Satbeer Singh Godara) Accountant Member Judicial Member

Cochin, Dated: 23rd October, 2024 VBP/- Copy to:

Assistant Registrar ITAT, Cochin