ADDL.C.I.T. 8(2), MUMBAI V. MUMBAI INTERNATIONAL AIRPORT PVT. LTD., MUMBAI

ITA 7507/MUM/2011

• Counselvise Citation: 750719914 RSA 2011
• Duration Of Justice: 2 year(s) 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 04-02-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 08-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PREETAM SINGH
• Assessee Lawyers: VIJAY MEHTA
• Keywords: Capital asset; Depreciation; Additional evidence; Onus to prove; Revenue expenditure; Capital expenditure
• Section: 32; 154; 133(6)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, M UMBAI BEFORE S/SHRI B.R.MITTAL,(JM) AND RAJENDRA (AM) . . , ' , $ ./I.T.A. NO.7507/MUM/2011 ( / ASSESSMENT YEAR : 2007-08) DY. COMMISSIONER OF INCOME TAX, 8(2) ROOM NO.216-A, AAYKAR BHAVAN, M.K.ROAD, MUMBAI-400020. / VS. M/S MUMBAI INTERNATIONAL AIRPORT PVT.LTD., 3 RD FLOOR, CORPORATE CENTRE, OPP: HOTEL LOTUS SUITS, MAROL PIPELINE, ANDHERI KURLA ROAD, GOLDEN BEACH RUIYA PARK, JUHU, MUMBAI-400049. ( ( / APPELLANT) .. ( )( / RESPONDENT) ./I.T.A. NO.7111/MUM/2011 ( / ASSESSMENT YEAR : 2007-08) M/S MUMBAI INTERNATIONAL AIRPORT PVT.LTD., 3 RD FLOOR, CORPORATE CENTRE, OPP: HOTEL LOTUS SUITS, MAROL PIPELINE, ANDHERI KURLA ROAD, GOLDEN BEACH RUIYA PARK, JUHU, MUMBAI-400049. / VS. ADDL. COMMISSIONER OF INCOME TAX, RANGE 8(2), 771, C-10, 7 TH FLOOR, PRATYAKSHAKAR BHAVAN, BANDRA-KURLA COMPLEX, BANDRA (E), MUMBAI-400051. ( ( / APPELLANT) .. ( )( / RESPONDENT) ./ ./PAN/GIR NO. : AAECM6285C ( / REVENUE BY : SHRI PREETAM SINGH )( , /ASSESSEE BY : SHRI V IJAY MEHTA , / DATE OF HEARING : 4.2.2014 , /DATE OF PRONOUNCEMENT : 14.2.2014 / O R D E R PER B.R.MITTAL, JM: THESE CROSS-APPEALS ARE FILED BY DEPARTMENT AND ASS ESSEE AGAINST THE ORDER OF LD. CIT(A) DATED 10.08.2011 FOR ASSESSMENT YEAR 20 07-08. 2 I.T.A. NO.7507/MUM/2011 I.T.A. NO.7111/MUM/201 1 2. RELEVANT FACTS ARE THAT THE ASSESSEE-COMPANY WAS INCORPORATED ON 27.2.2006. IT IS A JOINT VENTURE COMPANY IN WHICH THE AIR PORT AUTHORITY OF INDIA (HEREINAFTER TO BE REFERRED TO AS AAI) HOLDS 26% STAKE. THE MAIN OB JECTS OF THE ASSESSEE COMPANY ARE AS UNDER : A) TO TAKEOVER THE EXISTING CHHATRAPATI SHIVAJI I NTERNATIONAL AIRPORT (DOMESTIC, INTERNATIONAL AND CARGO TERMINAL) B) TO OPERATE, MAINTAIN, DEVELOP, DESIGN, CONSTRUCT , DEVELOP, MODERNIZE AND MAINTAIN THE AIRPORT. C) TO RENOVATE, EXPAND, AND MANAGE ALL ASSETS AND I NFRASTRUCTURE SUCH AS RUNWAYS, TAXIWAYS, APRONS, TERMINALS AND PROVIDE CA RGO AMENITIES ANCILLARY BUILDINGS ETC., D) TO PROVIDE FOR REPAIRING, SERVICING, ENGINE OVER HAULING, AND CREATE NECESSARY INFRASTRUCTURE SUCH AS HANGERS, AND MAINTENANCE BAY S, ETC., E) TO PROMOTE, OPERATE, MAINTAIN, DEVELOPE, DESIGN, CONSTRUCT, RENOVATE, EXPAND ALL INFRASTRUCTURE FACILITIES, WITHIN AND OUTSIDE T HE AIRPORT. F) TO DETERMINE APPROPRIATE RATE OF CHARGES, FEES & LEVIES AND COLLECT THE SAME FROM USERS OF THE AIRPORT AND INFRASTRUCTURE FACILI TIES THEREOF. 2.1 ON 4.4.2006, THE ASSESSEE COMPANY ENTERED INTO AN OPERATIONS, MANAGEMENT AND DEVELOPMENT AGREEMENT (HEREINAFTER TO BE REFERR ED TO AS OMDA) WITH AAI WITH RESPECT TO AFORESAID OBJECTIVES OF THE ASSESSEE COM PANY WHICH WAS CREATED AS A JOINT VENTURE COMPANY (JVC) FOR THE PURPOSE OF OPERATING, MANAGING, DEVELOPING, DESIGNING, CONSTRUCTION, UP GRADATION, MODERNIZATION, FINANCE AND MANAGEMENT OF THE MUMBAI AIRPORT. THE OMDA HAS AN INITIAL TERM OF 30 YEARS, WHICH IS EXTENDABLE AT THE ASSESSEES OPTION FOR A FURTHER PERIOD OF 30 YEARS . 2.2 THE ASSESSEE COMPANY HAS TO PERFORM CERTAIN AE RONAUTICAL AND NON-AERONAUTICAL SERVICES. THE PAYMENT OF ANNUAL FEES, PASSENGER S ERVICE CHARGES AND VARIOUS OTHER PAYMENTS ARE TO BE MADE TO AAI, IN TERMS OF VARI OUS PROVISIONS OF OMDA BY THE ASSESSEE. THUS, THE ASSESSEE, PROVIDES SERVICES O F AN AIRPORT OPERATOR TO THE VARIOUS AIRLINES AND THEIR PASSENGERS AND THE OPERATING IN COME OF THE ASSESSEE MAINLY COMPRISES LANDING AND PARKING SERVICES TO AIRLINES , PASSENGER SERVICE FEES, TRADING, CONCESSIONS FOR PROVIDING SPACE TO VARIOUS SERVIC ES PROVIDERS IN THE PREMISES OF THE AIRPORT, RENTALS FOR PROVIDING BUILDING SPACE AND HANGERS IN THE AIRPORT AND ALSO CARGO HANDLING. THE ASSESSEE COMPANY HAS TAKEN OVER THE O PERATIONS OF THE MUMBAI AIRPORT WITH EFFECT FROM 3.5.2006. 3 I.T.A. NO.7507/MUM/2011 I.T.A. NO.7111/MUM/201 1 3. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE FILED ITS RETURN OF INCOME ON 31.10.2007. AO MADE ASSESSMENT U/S 143( 3) OF THE INCOME TAX ACT, 1961 (THE ACT) VIDE ORDER DATED 7.12.2009 BY MAKING ADD ITIONS/DISALLOWANCES. THE ASSESSEE DISPUTED THE DISALLOWANCES/ADDITIONS BEFORE THE FIR ST APPELLATE AUTHORITY. THE LD. CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE IN PART. HENCE, DEPARTMENT AS WELL AS ASSESSEE ARE IN APPEAL BEFORE THE TRIBUNAL. 4. FIRSTLY, WE TAKE THE GROUNDS OF APPEAL TAKEN BY DEPARTMENT IN ITS APPEAL BEING I.T.A. NO.7507/MUM/2011. 5. GROUND NO.1 TAKEN BY THE DEPARTMENT IN ITS APPEA L IS AS UNDER : ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CASE A ND IN LAW, THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION OF DEPRECIATION ON U PFRONT FEES OF RS.22.50 CRORE WITHOUT CONSIDERING THE FACTS OF THE CASE, THE ASSE SSEE HAS NOT ACQUIRED ANY ABSOLUTE RIGHTS OVER THE AIRPORT, SO AS TO EQUATE I T AS A LICENSE, BUT INSTEAD, THE AAI HAS GRANTED THE ASSESSEE THE RIGHTS TO PERFORM CERTAIN FUNCTIONS DURING THE CONTRACT PERIOD OF 30 YEARS. 6. AO HAS STATED THAT THE ASSESSEE TREATED UPFRONT FEES OF RS.150 CRORES PAID TO AAI IN TERMS OF PROVISIONS OF OMDA AS AN INT ANGIBLE ASSETS AND CLAIMED DEPRECIATION OF RS.37.50 CRORES THEREON FOR THE A SSESSMENT YEAR UNDER CONSIDERATION. AO HAS STATED THAT THE ASSESSEE HAS PAID UPFRONT F EES OF RS.150 CRORES TO AAI IN TERMS OF CHAPTER XI OF THE OMDA, WHICH IS NON- REFUNDABLE, AS PART OF CONSIDERATION OF THE GRANT OF OPERATION AND MAINTENANCE RIGHTS O F MUMBAI AIRPORT. THE ASSESSEE STATED THAT THE SAID PAYMENT OF UPFRONT FEES IS CO NSIDERED AS A LICENSE FEE FOR RIGHT TO CONDUCT AIRPORT OPERATION BUSINESS GRANTED TO I T BY THE AAI. ASSESSEE CLAIMED THAT IT IS A DEPRECIABLE ASSETS IN THE HANDS OF AS SESSEE AND THE TERMS OF LICENSE IS COVERED UNDER THE PROVISIONS OF SECTION 32(1)(II) O F THE ACT. THEREFORE, THE ASSESSEE IS ENTITLED TO CLAIM DEPRECIATION. 6.1 HOWEVER, THE AO STATED THAT AAI , IN TERMS O F OMDA HAS PARTED WITH SOME OF ITS FUNCTIONS AND ENTRUSTED TO THE ASSESSEE COM PANY WITH THOSE FUNCTIONS UNDER OMDA WHICH HAS A LIFE TERM OF 30 YEARS AND AT T HE EXPIRY OF THE TERM; THE AAI HAS ALL THE RIGHTS TO TAKE OVER ALL RIGHTS, TITLE AND INTEREST IN ALL THE ASSETS OF THE AIRPORT. AO HAS STATED THAT THE ASSESSEE COMPANY DOES NOT HAVE AN EXCLUSIVE OWNERSHIP OVER THE AIRPORT AND IT HAS BEEN ENTRUSTED WITH THE WORK OF OPERATING, MAINTENANCE AND DEVELOPMENT OF AIRPORT JUST AS A CONTRACTOR FOR TH E PERIOD OF 30 YEARS AND THE CONTRACT TERMS SHALL BE GOVERNED BY THE PROVISIONS OF OMDA SIGNED BY THE ASSESSEE WITH AAI. OMDA IS LIABLE TO BE TERMINATED MIDWAY IF THERE ARE VIOLATIONS OF ITS PROVISIONS BY THE ASSESSEE. OMDA, IN EFFECT, GRA NTS RIGHTS SIMILAR TO LEASEHOLD RIGHTS 4 I.T.A. NO.7507/MUM/2011 I.T.A. NO.7111/MUM/201 1 TO THE ASSESSEE FOR A PERIOD OF 30 YEARS. HENCE, PAYMENT OF UPFRONT FEE BY THE ASSESSEE TO AAI IS JUST A PART OF THE TOTAL PACKA GE OF CONSIDERATION TO BE PAID AND THE REMAINING CONSIDERATIONS ARE TO BE PAID IN THE FORM OF ANNUAL FEE FROM YEAR TO YEAR ON THE BASIS OF REVENUE EARNED BY THE ASSESSEE. THE UPFRONT FEE PAID AS SUCH, DOES NOT BUY ANY LICENSE OR ANY ABSOLUTE RIGHT FOR THE ASSE SSEE WHICH CAN BE CONSIDERED FOR DEPRECIATION FROM YEAR TO YEAR. RATHER, IT IS AN O NE TIME LUMP SUM PAYMENT FOR EXERCISING THE RIGHT TO PERFORM CERTAIN FUNCTIONS O F AAI IN MUMBAI AIRPORT AND COLLECT REVENUES OVER A PERIOD OF 30 YEARS JUST THE WAY L ESSEE USES HIS RIGHTS OVER USING A LEASE HOLD ASSETS FOR SOME FINANCIAL GAIN. THUS, BENEFIT DERIVED FROM ONE TIME PAYMENT OF UPFRONT FEE, IS SPREAD OVER A PERIOD OF 30 YEARS AND NOT JUST 4 YEARS AS THE ASSESSEE INTENDS TO DO SO. AO CONCLUDED THAT ASSE SSEE IS ENTITLED FOR PROPORTIONATE DEDUCTION FROM YEAR TO YEAR FOR 30 YEARS IN VIEW OF THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD V/S CIT REPORTED IN 225 ITR 802 (SC). IN THE SAID JUDGMENT THE HONBLE APEX COURT HELD THAT WHERE THE ASSESSEE HAD ISSUED DEBENTURES AT A DISCOUNT, THE A SSESSEE WAS ENTITLED TO PROPORTIONATE DEDUCTION OF DISCOUNT SPREAD OVER TH E PERIOD FOR WHICH THE DEBENTURES WOULD REMAIN OUTSTANDING . IN VIEW OF ABOVE, THE AO DISALLOWED THE CLAIM OF ASSESSEE OF DEPRECIATION OF RS.37.50 CRORES AND ALLOWED DEDU CTION OF RS.15 CRORES OUT OF THE TOTAL AMOUNT OF RS.150 CRORES PAID AS UPFRONT F EE FOR THE TOTAL CONTRACT PERIOD OF 30 YEARS. THUS, AO ADDED NET AMOUNT OF RS.22.50 CROR ES IN THE HANDS OF ASSESSEE. BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE FI RST APPELLATE AUTHORITY. 7. ON BEHALF OF THE ASSESSEE, IT WAS CONTENDED THA T UPFRONT FEE OF RS.150 CRORES WAS PAID TO AAI AND IT GAVE TO THE ASSESSEE LICE NSE TO OPERATE, MAINTAIN AND DEVELOP MUMBAI AIRPORT. AAI GAVE EXCLUSIVE RIGHT AND AU THORITY TO THE ASSESSEE (CHAPTER-II OF OMDA) TO DETERMINE THE PAYMENT, COLLECT ETC., P ROPER CHARGES FROM THE USER OF THE AIRPORT PREMISES. BESIDES, PAYMENT OF UPFRONT FE E, THE ASSESSEE IS ALSO REQUIRED TO PAY TO AAI THE ANNUAL FEES FOR EACH YEAR DURING THE TERMS OF AGREEMENT AT THE RATE OF 38.7% OF THE PROJECTED REVENUE FOR THE SAID YE AR. (ARTICLE 11.1.2 OF OMDA). THOUGH THE ASSESSEE IS REQUIRED TO MODERNIZE AIRPO RT AS PER UNDERSTANDING BETWEEN THE PARTIES AND STRICTLY AS PER TERMS AND CONDITION S STIPULATED IN OMDA, THE ASSESSEE BY MAKING PAYMENT OF UPFRONT FEES OF RS.150 CRORE S TO AAI TO GET ONLY LICENSE TO CARRY ON ITS ACTIVITIES AND TO COLLECT TARIFF FROM THE END USERS. THE ASSESSEE HAS REFERRED THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF SOHAN LAL NARAINDAS V. LAXMIDAS RAGHUNATH GADIT (1971) 1 SCC 276, 279-280 WHEREIN T HE DIFFERENCE BETWEEN THE LEASE AND LICENSE WAS CONSIDERED BY THEIR LORDSHIPS A S UNDER : 5 I.T.A. NO.7507/MUM/2011 I.T.A. NO.7111/MUM/201 1 THE CRUCIAL TEST IN EACH CASE IS WHETHER THE INSTR UMENT IS INTENDED TO CREATE OR NOT TO CREATE AN INSTRUMENT IN THE PROPERTY THE SUB JECT- MATTER OF THE AGREEMENT. IF IT IS IN FACT INTENDED TO CREATE AN I NTEREST IN THE PROPERTY IT IS A LEASE, IF IT DOES NOT, IT IS A LICENSE. IN DETERMIN ING WHETHER THE AGREEMENT CREATES A LEASE OR A LICENSE THE TEST OF EXCLUSIVE POSSESSION, THOUGH NOT DECISIVE, IS OF SIGNIFICANCE. 7.1 ON BEHALF OF ASSESSEE, IT WAS CONTENDED THAT A S PER ARTICLE 11.1.1 IN CHAPTER XI, THE AMOUNT OF RS.150 CRORES PAID BY ASSESSEE I S ONE TIME PAYMENT AND NON- REFUNDABLE. ONCE AMOUNT IS NON-REFUNDABLE, IT IM PLIES THAT THE SAME IS FOR ACQUISITION OF RIGHTS OF LICENSE TO PERFORM CERTAIN FUNCTIONS A ND NOT IN THE NATURE OF ADVANCE LEASE PAYMENT AS PERCEIVED BY THE AO. IN CASE OF ADVANCE LEASE PAYMENT, IN THE EVENT OF PRE-MATURE TERMINATION OF LEASE, NORMALLY THE LEASE PREMIUM PERTAINING TO THE UNEXPIRED PERIOD OF LEASE IS TO BE REFUNDED. HOWEVER, IN THE CASE OF THE ASSESSEE, THERE IS NO SUCH PROVISION FOR REFUNDING THE LEASE RENT FOR THE UNEXPIRED PERIOD. IT WAS ALSO CONTENDED THAT THE AO ALSO IN HIS OWN PERCEPTION CONSIDERED THE SAID EXPENDITURE AS CAPITAL. THEREFORE, AO ONCE CONSIDERED THE EXPE NDITURE AS CAPITAL IN NATURE, THERE IS NO ESCAPEMENT FROM THE CONCLUSION THAT DEPRECIATIO N THEREON IS TO BE GRANTED. THE ASSESSEE ALSO REFERRED THE FOLLOWING CASES TO POIN T OUT THE DISTINCTION BETWEEN LEASE AND LICENSE : (A) ASHOKA HOTELS OF INDIA V. R. N. KAPUR (AIR 1959 SC 1262, 1269) WHEREIN IT WAS HELD AS UNDER : THERE IS A MARKED DISTINCTION BETWEEN A LEASE AND A LICENSE. SECTION 105 OF THE TRANSFER OF PROPERTY ACT DEFINES A LEASE OF IMMOVAB LE PROPERTY AS A TRANSFER OF A RIGHT TO ENJOY SUCH PROPERTY MADE FOR A CERTAIN TIM E IN CONSIDERATION FOR A PRICE PAID OR PROMISED. UNDER SECTION 108 OF THE SAID ACT , THE LESSEE IS ENTITLED TO BE PUT IN POSSESSION OF THE PROPERTY. A LEASE IS THERE FORE A TRANSFER OF AN INTEREST IN THE LAND. THE INTEREST TRANSFERRED IS CALLED THE LE ASEHOLD INTEREST. THE LESSOR PARTS WITH HIS RIGHT TO ENJOY THE PROPERTY DURING THE TER M OF THE LEASE AND IT FOLLOWS FROM IT THAT THE LESSEE GETS THAT RIGHT TO THE EXCL USION OF THE LESSOR. (B) B. M. LAL V. DUNLOP RUBBER CO. (AIR 1968 SC 175 , 177) WHEREIN IT WAS HELD : A LEASE. IS THE TRANSFER OF A RIGHT TO ENJOY THE PREMISES; WHEREAS A LICENSE IS PRIVILEGE TO DO SOMETHING ON THE PREMISE S WHICH OTHERWISE WOULD BE UNLAWFUL .THE TRANSACTION IS A LEASE, IS IT GRANTS AN INTEREST IN THE LAND; IT IS A LICENSE IF IT GIVES A PERSONAL PR IVILEGE WITH NO INTEREST IN THE LAND (C) KHALIL AHMED BASHIR AHMED V. TUFELHUSSEIN SAMAS BHAI SARANQPUIWALA (AIR 1988 SC 184, 190) WHEREIN IT WAS HEL D : TO PUT PRECISELY IF AN INTEREST IN IMMOVABLE PROPE RTY ENTITLING THE TRANSFEREE TO ENJOYMENT WAS CREATED, IT WAS A LEASE; IF PERMISSIO N TO USE LAND WITHOUT 6 I.T.A. NO.7507/MUM/2011 I.T.A. NO.7111/MUM/201 1 EXCLUSIVE POSSESSION WAS ALONE GRANTED, A LICENSE W AS THE LEGAL RESULT. WE ARE OF THE OPINION THAT THIS WAS A LICENSE AND NOT A LEASE AS WE DISCOVER THE INTENT. (D) QUDRAT ULLAH V. MUNICIPLA BOARD, BAREILLY (AIR 1974 SC 396): WHEREIN IT WAS HELD: .... IF AN INTEREST IN IMMOVABLE PROPERTY, ENTITLI NG THE TRANSFERORS TO ENJOYMENT IS CREATED, IT IS A LEASE; IF PERMISSION TO USE LAN D WITHOUT RIGHT TO EXCLUSIVE POSSESSION IS ALONE GRANTED LICENCE (E) BOARD OF REVENUE V/S A.M.ANSARI (AIR 1976 SC 1 813, 1816) WHERE IN IT WAS HELD: .IT IS THE CREATION OF AN INTEREST IN IMMOVABLE PROPERTY OR RIGHT TO POSSESS IT THAT DISTINGUISHES A LEASE FROM LICENSE. A LICENSE DOES NOT CREATE AN INTEREST IN THE PROPERTY TO WHICH IT RELATES WHILE A LEASE DOES . THERE IS IN OTHER WORDS TRANSFER OF A RIGHT TO ENJOY THE PROPERTY IN CASE A LEASE 7.2 ON BEHALF OF ASSESSEE IT WAS FURTHER STATED TH AT THE GRANT OF RIGHT FOR A PERIOD OF 30 YEARS CANNOT ACT AGAINST THE ELIGIBILITY F OR DEPRECIATION AND LD. CIT(A) HAS STATED AT PAGE 19 OF THE IMPUGNED ORDER THAT IT WAS SUBMIT TED BEFORE HIM AS UNDER : ATTENTION WAS DRAWN TO OTHER SPECIFIED INTANGIB LE ASSETS PROVIDED IN CLAUSE (II), OF SECTION 32 WHICH ARE PATENT, TRADEMARK AND COPYRIGHTS. AS PER SECTION 22 OF THE COPYRIGHT ACT, 1957, COPYRIGHT IS REGISTERED FOR 60 YEARS. SECTION 53 OF THE PATENTS ACT, 1970, THE LIFE OF PATENTS IS 20 YEARS AND AS PER SECTION 25 OF TRADEMARK ACT, 1999, THE TRADEMARK IS AVAILABLE FOR A PERIOD 10 YEARS. INSPITE OF ALL THESE LIMITATIONS OF PERIOD, THE DEPRECIATION I S ADMITTEDLY ADMISSIBLE ON THESE INTANGIBLE ASSETS. THEREFORE, THERE IS NO REASON TO HOLD THAT THE DEPRECIATION IS AVAILABLE AS THE INTANGIBLE ASSETS IN THE FORM OF L ICENSE ARE OWNED BY THE APPELLANT ONLY FOR A PERIOD OF 30 YEARS. 7.3 IT WAS CONTENDED THAT THE EXPENDITURE ON ACCOUN T OF PAYMENT OF UPFRONT FEE IS A CAPITAL EXPENDITURE GIVING RISE TO INTANGIBLE A SSETS IN THE FORM OF LICENSE. 8. LD. CIT(A) CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AND THE CASES REFERRED TO (SUPRA). LD. CIT(A) HAS STATED THAT THE HONBLE APEX COURT HAS HELD IN THE CASE OF TECHNOSHARES AND STOCKS LTD AND OTHERS V/S CIT, 3 27 ITR 323 (SC) THAT MEMBERSHIP RIGHT OF STOCK EXCHANGE IS A BUSINESS OR A COMMER CIAL RIGHT CONFERRED BY THE RULES OF BSE ON THE NON DEFAULTING CONTINUING MEMBERS AND BY VIRTUE OF EXPLANATION 3 TO SECTION 32(1)(II) THE COMMERCIAL OR BUSINESS RIGHT WHICH IS SIMILAR TO A LICENSE OR FRANCHISE IS DECLARED TO BE AN INTANGIBLE ASSET. THAT THE RIGH T TO PARTICIPATE IN THE MARKET IS AN ECONOMIC AND MONEY VALUE. IT IS AN EXPENDITURE INC URRED BY THE ASSESSEE WHICH SATISFIES THE TEST OF BEING A LICENSE OR ANY OTHE R BUSINESS OR COMMERCIAL RIGHT OF SIMILAR NATURE IN TERMS OF SECTION 32(1)(II) OF TH E ACT. THE LD. CIT(A) HAS ALSO CONSIDERED THE DECISION OF THE HONBLE DELHI HIGH C OURT IN THE CASE OF CIT V/S 7 I.T.A. NO.7507/MUM/2011 I.T.A. NO.7111/MUM/201 1 HINDUSTAN COCA COLA BEVERAGES PVT LTD -331 ITR 19 2 (DEL) AND STATED THAT THEIR LORDSHIPS HAVE HELD THAT THE ASSETS WHICH ARE I NCLUDED IN THE DEFINITION OF INTANGIBLE ASSETS INCLUDE, ALONG WITH OTHER THINGS, ANY OTH ER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. THE SIMILAR HAS BEEN DEALT WITH BY THE HONBLE APEX COURT IN THE CASE OF NAT STEEL EQUIPMENT (P) LTD V/S CCE (AIR 1988 SC 631) WHEREIN THE HONBLE APEX COURT HAS OPINED THAT THE TERM SIMILAR MEANS CO RRESPONDING TO OR RESEMBLING TO IN MANY ASPECTS. THE LD. CIT(A) ALSO CONSIDERED THE D ECISION OF DELHI HIGH COURT IN THE CASE OF ONGC VIDESH LTD V/S DCIT, 37 SOP 97(DEL) WH EREIN IT IS HELD THAT THE ASSESSEE WAS ENGAGED IN EXPLORATION, DEVELOPMENT AND PRODUCT ION OF HYDRO CARBONS. THE ASSESSEE WAS ASSIGNED RIGHTS TO PARTICIPATE IN OIL EXPLORATION IN RUSSIA THROUGH A CONSORTIUM. THE SAID RIGHT WAS FOR A PERIOD OF 25 Y EARS. THE TOTAL CONSIDERATION PAID BY THE ASSESSEE FOR OBTAINING 20% MEMBERSHIP IN THE CO NSORTIUM, AMOUNTING TO RS. 155.9 CRORES, WAS TREATED BY THE ASSESSEE AS A LICENSE, B EING INTANGIBLE ASSETS, AND ENTITLED TO DEPRECIATION @ 25%, U/S. 32. THE AO DISALLOWED THE DEPRECIATION ON THE GROUNDS THAT THE RIGHT ACQUIRED WAS NOT OF THE SIMILAR NATURE AS THOSE SPECIFIED IN SECTION 32(1)(II). THE TRIBUNAL, AFTER CONSIDERING THE FACTS, HELD THA T THE RIGHT ACQUIRED BY THE ASSESSEE WAS SIMILAR IN NATURE TO A LICENSE, AND WAS THERE FORE ELIGIBLE FOR DEPRECIATION U/S. 32(1)(II). 8.1. LD. CIT(A) HAS STATED THAT THE DEFINITION OF INTANGIBLE ASSET HAS TO BE GIVEN WIDER MEANING TO INCLUDE BUSINESS AND COMMERCIAL R IGHTS OF SIMILAR NATURE. HE HAS STATED THAT THE AGREEMENT BETWEEN AAI AND JVC (OMDA) OPENS WITH THE PREAMBLE THAT AAI IS DESIROUS OF GRANTING SOME OF ITS FUNCTI ONS TO THE JVC. AAI HAS GRANTED EXCLUSIVE RIGHT AND AUTHORITY FOR OPERATING , MAIN TENANCE, DEVELOPMENT, DESIGN, CONSTRUCTION, UP GRADATION ETC OF MUMBAI AIR PORT FOR A PERIOD OF 30 YEARS EXTENDABLE BY ANOTHER 30 YEARS AND JVC HAS COMPLETE AND UNIN TERRUPTED CONTROL OF THE AIRPORT SITE AND THE EXISTING ASSETS. JVC HAS RIGHT TO SU B-CONTRACT WITH THIRD PARTIES SUB-LEASE OR LICENSE THE DEMISE PREMISES IN ACCORDANCE WITH A RTICLE 8.5.7. UPFRONT FEE OF RS.150 CRORES IS NON-REFUNDABLE. LD. CIT(A) HAS FURTHER S TATED THAT THE ASSESSEE HAS THE RIGHT TO CREATE MORTGAGE ON THE TRANSFER ASSETS FO R THE PURPOSES OF ARRANGING FINANCE. THE LD. CIT(A) HAS STATED THAT IN FACT RIGHTS AR E TRANSFERRABLE TO AAI ON THE EXPIRY OF THE PERIOD OF 30 YEARS, ON PAYMENT OF COMPENSATI ON. THAT IT CANNOT BE SAID THAT THE ASSESSEE IS NOT HAVING OWNERSHIP RIGHTS BY VIRTUE OF AGREEMENT, AND THE SAME IS AKIN TO A LEASE. ON THE OTHER HAND, LD. CIT(A) HAS STA TED THAT THE GRANT IS MORE IN THE NATURE OF A LICENSE THAN A LEASE . 8 I.T.A. NO.7507/MUM/2011 I.T.A. NO.7111/MUM/201 1 8.2 THAT THE LD. CIT(A) AFTER SUMMARIZING HIS FIND INGS IN PARA 4.14 OF THE IMPUGNED ORDER HAS HELD THAT THE EXPENDITURE ON ACCOUNT OF U PFRONT FEE HAS CREATED A CAPITAL ASSET IN THE FORM OF LICENSE AND THE CLAIM OF DEP RECIATION ON THIS INTANGIBLE ASSETS, IS REQUIRED TO BE UPHELD. UNTIL, THIS UPFRONT FEE IS PAID AS PER TERMS AND CONDITIONS OF THE AGREEMENT, THE ASSESSEE COULD NOT HAVE ACQUI RED THE RIGHT TO DEVELOP THE AIRPORT. THE LD. CIT(A) HAS ALSO CONSIDERED THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF ASHOKA INFO (P) LTD V/S ACIT (123 TT J 77)(PUNE) WHEREIN IT HAS BEEN HELD THAT THE EXPENDITURE INCURRED ON CONSTRUCTION OF THE HIGHWAY IS ELIGIBLE FOR DEPRECIATION @25% AS THIS EXPENDITURE HAS GIVEN RI SE TO AN INTANGIBLE ASSET IN THE HANDS OF THE ASSESSEE. SINCE THE ASSESSEE HAS PAID PAYMENT OF UPFRONT FEE TO ACQUIRE RIGHT TO DEVELOP, MODERNIZE THE AIRPORT WHICH IS A CAPITAL EXPENDITURE, CREATING INTANGIBLE ASSETS IN THE NATURE OF LICENSE. H ENCE, THE ASSESSEE IS ELIGIBLE FOR DEPRECATIONS UNDER THE PROVISIONS OF SECTION 32 (1 )(II) OF THE ACT. THEREFORE, THE LD. CIT(A) HAS DELETED THE DISALLOWANCE OF RS.22.50 C RORES AND DIRECTED THE AO TO ALLOW DEPRECIATION AT THE RATE OF 25% ON THE PAYMENT OF UPFRONT FEE OF RS.150 CRORES. BEING AGGRIEVED, DEPARTMENT IS IN APPEAL BEFORE TH E TRIBUNAL. 9. THAT LD. DR SUBMITTED THAT THE SAID UPFRONT FEE OF RS.150 CRORES WAS PAID TO ACQUIRE LEASEHOLD RIGHT FOR 30 YEARS. HE REFERRED PARA 7 OF THE ASSESSMENT ORDER AND SUBMITTED THAT THE ASSESSING OFFICER HAS RIGHTLY SA ID THAT THE ASSESSEE IS ENTITLED TO PROPORTIONATE DEDUCTION FROM YEAR TO YEAR IN 30 YEA RS. THE LD. DR REFERRED THE DECISION IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPO RATION LTD.(SUPRA) AND SUBMITTED THAT THE TOTAL EXPENDITURE IS TO BE SPREAD PROPORTIONAT ELY OVER A PERIOD OF 30 YEARS IN AN EQUITABLE MANNER. LD. DR ALSO REFERRED THE DECISIO N OF THE MUMBAI TRIBUNAL IN THE CASE OF ITO V/S M/S NAVI MUMBAI SEZ PVT.LTD. IN I.T.A. N OS.738 TO 741/MUM/2012 (2006-07 TO 2009-10) , ORDER DATED 16.8.2013 AND SUBMITTED THAT THE PAYMENT OF RS.150 CRORES AS UPFRONT FEE TO AAI COULD NOT BE SAID TO ACQUIR E A LICENSE BY THE ASSESSEE. THEREFORE, AO HAS RIGHTLY DISALLOWED THE CLAIM OF DEPRECIATION OF RS.37.50 CRORES AND ALLOWED THE PROPORTIONATE DEDUCTION CONSIDERING TH E TOTAL CONTRACT PERIOD OF 30 YEARS BECAUSE THE ASSESSEE HAS GOT RIGHT UNDER OMDA TO COLLECT REVENUE ON ACCOUNT OF LEASE HOLD RIGHTS GIVEN TO THE ASSESSEE. 9.2 IT IS RELEVANT TO STATE THAT THE AO ALLOWED THE DEDUCTION OF RS.15 CRORES BY CONSIDERING THAT THE ASSESSEE IS ENTITLED TO USE T HE LEASE RIGHT FOR A PERIOD OF 30 YEARS ON ACCOUNT OF PAYMENT OF UPFRONT FEE OF RS.150 CR ORES AND THEREFORE THE ASSESSEE IS ENTITLED TO PROPORTIONATE DEDUCTION. IT MAY BE ST ATED THAT THE SAID DEDUCTION AS PER AO SHOULD COME TO RS.5 CRORES BUT THE AO HAS MENTI ONED IN THE ASSESSMENT ORDER THE 9 I.T.A. NO.7507/MUM/2011 I.T.A. NO.7111/MUM/201 1 DEDUCTION OF RS.15 CRORES AND MADE THE NET ADDITI ON OF RS.22.50 CRORES OUT OF THE CLAIM OF THE ASSESSEE OF DEPRECIATION OF RS.37.50 CORERS. AS PER ABOVE FINDINGS OF AO, THE TOTAL ADDITION SHOULD HAVE BEEN RS.32.50 CRORES AFTER ALLOWING DEDUCTION OF RS.5 CRORES (RS.150 CRORES/ 30 YEARS). THE ASSESSEE ALS O DISPUTED THE SAID ADDITION OF RS.22.50 CRORES BEFORE THE FIRST APPELLATE AUTHOR ITY, AND THE LD. CIT(A) ALSO DELETED THE SAME WHICH IS DISPUTED BY DEPARTMENT IN THE APP EAL BEFORE THE TRIBUNAL. DURING THE COURSE OF GOING THROUGH THE ORDER OF LD. CIT( A), IT IS OBSERVED THAT THE LD. CIT(A) PASSED ORDER U/S 154 OF THE ACT DATED 1.6.2010 TO M AKE THE DISALLOWANCE/ADDITION OF RS.32.50 CRORES. BE THAT AS IT MAY, WE PROCEED TO CONSIDER THE AMOUNT DISPUTED IN THE GROUNDS OF APPEAL BEFORE US FOR OUR CONSIDERATION. 9.3 LD.AR IN HIS SUBMISSIONS SUPPORTED THE ORDER O F LD. CIT(A). HE SUBMITTED THAT IT WAS NOT SIMPLY A LEASING OF SPACE BUT THE ASSESS EE HAS ACQUIRED A LICENSE TO CARRY ON ITS BUSINESS AND TO COLLECT CHARGES, FEES AND LEV IES FROM END USERS OF THE AIRPORT PREMISES PURSUANT TO AGREEMENT ENTERED INTO, AN D UNDER WHICH THE ASSESSEE HAS PAID AN UPFRONT FEE OF RS.150 CRORES. THE LD. AR SUBMI TTED THAT THE ASSESSEE HAS NOT ACQUIRED ANY RIGHT TO ENJOY THE SPACE AT THE AIRPOR T BUT HAS GOT ONLY PRIVILEGE TO DO REQUISITE ACTIVITIES FOR MODERNIZATION, OPERATION, MAINTENANCE, DEVELOPMENT, CONSTRUCTION, UP GRADATION ETC UNDER OMDA. LD A R SUBMITTED THAT IF THE AGREEMENT IS TERMINATED PREMATURELY, THE ASSESSEE IS NOT ENTITLE D TO GET REFUND OF THE SAID UPFRONT FEE UNLIKE IN THE CASE OF LEASE PAYMENT. HE SUBM ITTED THAT THE PAYMENT OF UPFRONT FEE TO AAI HAS RESULTED IN GRANTING A LICENSE TO THE ASSESSEE AND THEREFORE IS ELIGIBLE FOR DEPRECIATION BY TREATING IT AS INTANGIBLE ASSE TS. LD. AR SUBMITTED THAT THE DECISION OF MUMBAI BENCH OF TRIBUNAL IN THE CASE OF RELIAN CE PORTS TERMINALS LTD V/S DCIT IN ITA NOS.1743, 1744 AND 1745 / MUM/2007 (AYS-2000-0 1, 2001-2002 AND 2002-03) ORDER DATED 26.11.2007, RELIED UPON BY LD. DR, SU PPORTS THE CASE OF ASSESSEE AS IN THAT CASE, IT WAS HELD THAT THE EXPENDITURE INCURRED TO WARDS COST OF CONSTRUCTION OF JETTY UNDER AN AGREEMENT WITH GUJARAT MARITIME BOARD , IT WAS TO REMAIN IN FORCE FOR A PERIOD OF 25 YEARS OR TILL SUCH TIME THE AGGREG ATE OF REBATE (UNDER WHARFAGE CHARGE) AVAILED OFF BY THE ASSESSEE EQUALS TO THE AMOUNT O F COST OF CONSTRUCTION OF JETTY WHICHEVER IS EARLIER; WAS HELD CAPITAL IN NATURE A ND WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS UNDER THE TERMS OF AGRE EMENT. IT WAS HELD THAT ASSESSEE HAD ACQUIRED SOME BUSINESS OR COMMERCIAL RIGHTS BY INCURRING EXPENDITURE. THAT THE EXPENDITURE HAD NOT RESULTED IN THE ACQUISITION OF ANY TANGIBLE ASSETS LIKE BUILDING, MACHINERY, PLANT OR FURNITURE. THE TRIBUNAL HELD TH AT THE ASSESSEE COMPANY ACQUIRED THE RIGHT TO CLAIM REBATE ON THE WHARFAGE CHARGES P AYABLE OR TO GUARD AGAINST THE POSSIBLE INCREASE IN THE WHARFAGE CHARGES THAT MIGH T BE NECESSITATED BY EFFLUX OF TIME 10 I.T.A. NO.7507/MUM/2011 I.T.A. NO.7111/MUM/201 1 OR ECONOMIC INFLATION CONSIDERING ALL POINTS TOGET HER. IT WAS HELD THAT THE SAID EXPENDITURE GAVE RISE TO ACQUISITION OF LICENSE OR OTHER BUSINESS OR COMMERCIAL RIGHTS WHICH ARE REALLY IN THE NATURE OF INTANGIBLE ASSET S AND ARE FULLY COVERED WITHIN THE MEANING OF SECTION 32(1)(II) OF THE ACT. THEREFO RE, ASSESSEE IS ENTITLED FOR APPROPRIATE DEPRECIATION BY TREATING THE SAID EXPENDITURE AS PA RT OF THE BLOCK OF INTANGIBLE ASSETS. LD AR SUBMITTED THAT THE CASE OF ASSESSEE IS FULLY COVERED IN ITS FAVOUR BY THE DECISION OF TRIBUNAL (SUPRA) AND ACCORDINGLY THE ORDER OF L D. CIT(A) MAY BE CONFIRMED. 10. WE HAVE CAREFULLY CONSIDERS THE ORDERS OF AUTHO RITIES BELOW AND SUBMISSIONS OF LD. REPRESENTATIVES OF THE PARTIES. WE HAVE ALSO C ONSIDERED THE RELEVANT ARTICLES OF OMDA AND THE CASES RELIED UPON BY THE PARTIES BEF ORE THE AUTHORITIES BELOW (SUPRA) AS WELL AS THE CASES REFERRED BEFORE US. 10.1 THE ASSESSEE IS A JOINT VENTURE COMPANY. IT HAS ENTERED INTO AN AGREEMENT WITH AAI AND UNDER THE AGREEMENT I.E. OMDA, T HE ASSESSEE HAS BEEN GRANTED EXCLUSIVE RIGHT AND AUTHORITY TO UNDERTAKE SOME OF THE FUNCTIONS OF AAI BEING FUNCTIONS OF OPERATION, MAINTENANCE, DEVELOPMENT, DESIGN, CONSTRUCTION, UP GRADATION, MODERNIZATION, FINANCE AND MANAGEMENT OF AIRPORT FO R AN INITIAL TERM OF 30 YEARS, WHICH IS EXTENDABLE FOR A FURTHER PERIOD OF 30 YEARS ON THE SAME TERMS AND CONDITIONS AS APPLICABLE FOR THE INITIAL PERIOD, AS PER ARTICLE 18.1 OF OMDA. UNDER THE TERMS AND CONDITIONS OF OMDA, THE ASSESSEE PAID A SUM OF R S.150 CRORES TO AAI AS UPFRONT FEE AS DESCRIBED UNDER ARTICLE 11.1.1 OF CHAPTER-XI O F OMDA WHICH IS REPRODUCED AS UNDER : 11.1.1 UPFRONT FEE THE JVC SHALL PAY TO THE AAI AN UPFRONT FEE (THE UPFRONT FEE) OF RS.150 CRORES (RUPEES ONE HUNDRED AND FIFTY CRORES ONLY) ON OR BE FORE THE EFFECTIVE DATE. IT IS MUTUALLY AGREED THAT THIS UPFRONT FEE IS NON-REFUND ABLE (EXCEPT ON ACCOUNT OF TERMINATION OF THIS AGREEMENT IN ACCORDANCE WITH A RTICLE 3.3 HEREOF AND PAYABLE ONLY ONCE DURING THE TERM OF THIS AGREEMENT BESIDES, ABOVE PAYMENT, THE ASSESSEE IS ALSO TO PA Y ANNUAL FEES AS PER ARTICLE 11.1.2.1 FOR EACH YEAR DURING THE TERMS OF THE AGRE EMENT. BY VIRTUE OF ABOVE ONE TIME PAYMENT OF UPFRONT FEE OF RS.150 CRORES, THE ASSESS EE HAS BEEN GIVEN EXCLUSIVE RIGHT AND AUTHORITY TO COLLECT PAYMENT OF VARIOUS NATURE FROM THE USERS OF AIRPORT PREMISES AS PER ARTICLE 2.1.2(III) OF CHAPTER-II, SUBJECT TO THE REGULATIONS PRESCRIBED UNDER CHAPTER XII. THE QUESTION ARISES AS TO WHETHER TH E ASSESSEE HAS GOT THE LEASE RIGHT OR A LICENSE BY MAKING THIS ONE TIME PAYMENT OF RS.15 0 CRORES TO AAI AS UPFRONT FEE. 11 I.T.A. NO.7507/MUM/2011 I.T.A. NO.7111/MUM/201 1 10.2 THAT THE AO HAS STATED THAT THE ASSESSEE HAS G OT LEASE HOLD RIGHTS FOR A PERIOD OF 30 YEARS AND WHEREAS THE ASSESSEE HAS CONTENDED THAT THE ASSESSEE HAS GOT A LICENSE FOR A PERIOD OF 30 YEARS AND AS SUCH IT IS AN INTANGIBLE ASSETS. THUS, THE ASSESSEE IS ENTITLED FOR DEPRECIATION AS PER SECTIO N 32(1)(II) OF THE ACT. WE OBSERVE THAT THE SAID AMOUNT OF RS.150 CRORES PAID BY ASSESSEE IS NON-REFUNDABLE. THE ASSESSEE HAS GOT THE PRIVILEGE UNDER OMDA TO COLLECT CHA RGES OF THE NATURE AS MENTIONED IN THE AGREEMENT ENTERED INTO I.E. OMDA FROM THE USE RS OF AIRPORT PREMISES. WE OBSERVE THAT IT IS NOT A CASE WHERE THE ASSESSEE HA S GOT THE TRANSFER OF A RIGHT TO ENJOY THE AIRPORT PREMISES. THE ASSESSEE ONLY GOT A LICEN SE OR RIGHT TO DO SOMETHING AT THE AIRPORT PREMISES. THE HONBLE APEX COURT HAS HELD IN THE CASE OF B. M. LAL (SUPRA) THAT THE TRANSACTION IS A LEASE, IF IT GRANTS THE I NTEREST IN THE LAND AND WHEREAS IT IS A LICENSE IF IT GIVES A PERSONAL PRIVILEGE WITH NO IN TEREST IN THE LAND. WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE HAS GOT THE ECO NOMIC /COMMERCIAL RIGHT UNDER THE SAID AGREEMENT TO COLLECT CHARGES FROM THE USERS OF THE AIRPORT PREMISES WHICH IS SIMILAR TO GRANT OF A LICENSE TO THE ASSESSEE. THIS CASE IS SIMILAR TO THE CASE OF TECHNOSHARES AND STOCKS LTD AND OTHERS (SUPRA), W HEREIN THE HONBLE APEX COURT HAS HELD THAT A RIGHT GIVEN TO MEMBER OF STOCK-EXCHA NGE TO CARRY ON THE BUSINESS AT THE PREMISES OF THE STOCK-EXCHANGE IS A BUSINESS OR C OMMERCIAL RIGHT WHICH IS AKIN TO LICENSE IN TERMS OF SECTION 32(1)(II) OF THE ACT, T HEREFORE, ELIGIBLE FOR DEPRECIATION. THEIR LORDSHIPS HAVE HELD THAT RIGHT TO PARTICIPATE IN TH E MARKET IS AN ECONOMIC AND MONEY VALUE, ITSELF SATISFIES THE TEST OF BEING A LICE NSE. THERE IS NO DISPUTE TO THE FACT THAT THE SAID PAYMENT OF RS.150 CRORES PAID TO AAI H AS NOT RESULTED TO THE ASSESSEE IN THE ACQUISITION OF ANY TANGIBLE ASSETS LIKE BUILD ING, MACHINERY, PLANTS OR FURNITURE. THEREFORE THE SAID PAYMENT OF RS.150 CRORES HAS NO T RESULTED INTO ACQUISITION OF TANGIBLE ASSETS. THUS, THE ASSESSEE HAS ONLY A CQUIRED RIGHT TO COLLECT CHARGES FROM THE USERS OF THE AIRPORT PREEMIES, WHICH IS A BUSI NESS OR COMMERCIAL RIGHT IN THE FORM OF LICENSE AND THEREFORE IT IS AN INTANGIBLE ASS ETS AS PER SECTION 32(1)(II) OF THE ACT. THE HONBLE DELHI HIGH COURT IN THE CASE OF HIND USTAN COCA COLA BEVERAGES PVT LTD (SUPRA) HAS ALSO HELD THAT THE ASSETS WHICH ARE INCLUDED IN THE DEFINITION OF INTANGIBLE ASSETS INCLUDE, ALONG WITH OTHER THI NGS, ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. IN THIS REGARD, IT IS R ELEVANT TO STATE THAT THE DECISION OF DELHI HIGH COURT IN THE CASE OF ONGC VIDESH LTD (SUPRA) H AS HELD THAT THE ASSESSEE WHO WAS ASSIGNED THE RIGHTS TO PARTICIPATE IN OIL EXPLORAT ION IN RUSSIA THROUGH A CONSORTIUM FOR A PERIOD OF 25 YEARS AND PAID THE TOTAL CONSIDERATION FOR OBTAINING 20% MEMBERSHIP IN THE CONSORTIUM, AMOUNTING TO RS. 155.9 CRORES, WAS TREA TED TO ACQUIRE A LICENSE, BEING INTANGIBLE ASSETS, AND THUS ASSESSEE WAS ENTITLED T O CLAIM DEPRECIATION U/S. 32(1)(II) OF 12 I.T.A. NO.7507/MUM/2011 I.T.A. NO.7111/MUM/201 1 THE ACT. PUNE BENCH OF THE TRIBUNAL IN THE CASE O F ASHOKA INFO (P) LTD (SUPRA) HAS ALSO HELD THAT THE EXPENDITURE INCURRED ON CONSTRU CTION OF HIGHWAY IS ELIGIBLE FOR DEPRECIATION @25%, AS THIS EXPENDITURE HAS GIVEN RISE TO AN INTANGIBLE ASSETS IN THE HANDS OF THE ASSESSEE. IN VIEW OF ABOVE DECISIONS AND THE FACTS OF THE CASE, WE HOLD THAT THE LD. CIT(A) HAS RIGHTLY HELD THAT THE PAYM ENT OF UPFRONT FEE OF RS.150 CRORES PAID BY ASSESSEE TO AAI HAS CREATED CAPITAL ASS ETS IN THE FORM OF LICENSE TO DEVELOP AND MODERNIZE THE AIRPORT AND COLLECT CHARGES AS P ER TERMS AND CONDITIONS AS PRESCRIBED UNDER THE AGREEMENT ENTERED INTO WHICH I S AN INTANGIBLE ASSETS TO THE ASSESSEE. THUS ASSESSEE IS ENTITLED FOR DEPRECIATIO N. 10.3 HENCE, THE DISALLOWANCE OF RS.22.50 CRORES MA DE BY AO HAS RIGHTLY BEEN DELETED BY LD. CIT(A) BY DIRECTING THE AO TO ALLO W DEPRECIATION AT THE RATE OF 25% ON THE SAID PAYMENT OF UPFRONT FEE OF RS.150 CRORES. THUS, GROUND NO.1 TAKEN BY DEPARTMENT IS REJECTED. 11. GROUND NO.2 TAKEN BY THE DEPARTMENT IS AS UNDER : ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CASE A ND IN LAW, THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION OF OPERATING AND ADM INISTRATIVE EXPENSES OF RS.64,77,39,527/- MADE BY THE AO BY TREATING IT AS A CAPITAL EXPENDITURE AND ALLOWING DEPRECIATION AT THE RATE OF 10%, WITHOUT C ONSIDERING THE FACT THAT THIS BEING THE FIRST YEAR OF OPERATION, A MAJOR PORTION OF THE EXPENDITURE WOULD BE FOR MODERNIZATION AND EXPANSION OF THE AIRPORT, CONSTIT UTING CAPITAL EXPENDITURE. 12. AO HAS STATED THAT THE ASSESSEE INCURRED INDIR ECT EXPENSES TO THE TUNE OF RS.225.22 CRORES. OUT OF THE SAID EXPENDITURES, TH E ASSESSEE CAPITALIZED EXPENDITURES OF RS.21.43 CRORES TO THE PROJECT ACCOUNT AND REMAI NING AMOUNT OF RS.203.71 CRORES CLAIMED AS REVENUE EXPENDITURES. DURING THE COURS E OF ASSESSMENT PROCEEDINGS, THE AO SOUGHT DETAILS AND THE WORKING OF THIS EXPEND ITURES AND THE BASIS OF ITS APPORTIONMENT BETWEEN THE PROJECT AND OPERATION. A O HAS STATED THAT THE ASSESSEE FILED THE DETAILS OF ITEM-WISE EXPENDITURE. THAT T HE ASSESSEE ALSO FILED A COPY OF CHART SHOWING ALLOCATION OF INDIRECT EXPENSES BETWEEN TH E PROJECTS AND OPERATIONS. AO, TAKING INTO ACCOUNT THE DETAILS FILED BY THE ASSES SEE, HELD THAT THE BASIS OF APPORTIONMENT OF INDIRECT EXPENSES BETWEEN REVENUE AND CAPITAL IS NEITHER TRANSPARENT NOR SUBSTANTIATED BY VERIFIABLE EVIDENCE. AO, THE REFORE, APPORTIONED THE EXPENDITURE IN THE RATIO OF 75:25, BETWEEN THE PROJECTS AND R EVENUE OPERATIONS, THE DETAILS OF WHICH ARE GIVEN AT PAGES 13 OF THE ASSESSMENT ORDER . ACCORDINGLY, THE AO CAPITALIZED THE EXPENDITURE OF RS.64,77,39,527/- AFTER ALLOWIN G DEPRECIATION AT THE RATE OF 10% ON THE SAID CAPITALIZED EXPENDITURE, MADE ADDITION OF RS.58,29,65,575/-. BEING AGGRIEVED, ASSESSEE FILED APPEAL BEFORE THE FIRST APPELLATE A UTHORITY. 13 I.T.A. NO.7507/MUM/2011 I.T.A. NO.7111/MUM/201 1 13. THE LD. CIT(A) HAS STATED THAT THE ASSESSEE VID E LETTER DATED 12.5.2010 FILED AN APPLICATION FOR ADMISSION OF ADDITIONAL EVIDENCE U NDER RULE 46A OF THE INCOME TAX RULES, 1962 (THE RULES). IN THIS REGARD, THE ASSES SEE REVISED THE CHART, THE DETAILS OF WHICH ARE GIVEN BY HIM AT PAGES 27-28 OF THE IMPUGN ED ORDER. THE ASSESSEE STATED DURING THE ASSESSMENT PROCEEDINGS, INADVERTENTLY, C ERTAIN ERRORS WERE MADE IN THE ORIGINAL CHART, SHOWING ALLOCATIONS OF INDIRECT EXP ENSES BETWEEN PROJECT AND OPERATIONS. THEREFORE, CORRECT CHART SHOWING ALLOCATION OF INDI RECT EXPENDITURE BETWEEN THE PROJECT AND OPERATIONS WAS FILED VIDE LETTER DATED 12.5.201 0 ALONG WITH APPLICATION UNDER RULE 46A(1). THE LD.CIT(A) SOUGHT REMAND REPORT FROM A O. AO OBJECTED TO THE ADMISSION OF ADDITIONAL EVIDENCE. HOWEVER, HE SUBMITTED HIS RE MAND REPORT, THE DETAILS OF WHICH ARE STATED BY LD. CIT(A) AT PAGES 30 TO 37 OF THE IMPU GNED ORDER. AO IN THE REMAND REPORT ADMITTED THAT THERE WAS CERTAIN ERRORS IN THE ORIG INAL CHART INDICATING THE APPORTIONMENT OF INDIRECT EXPENSES BETWEEN PROJECT AND OPERATION S. HOWEVER, AO STATED THAT CORRESPONDING LEDGER ACCOUNT AND INVOICES/VOUCHERS HAVE NOT BEEN PRODUCED DURING THE COURSE OF ASSESSMENT, NOR DURING REMAND PROCEEDING S. THEREFORE, IT WAS NOT POSSIBLE TO VERIFY THE AUTHENTICITY OF THE EXPENDITURE INCURRED UNDER 26 HEADS OF INDIRECT EXPENDITURES. AO STATED THAT ALLOCATION CHART OF T HE ASSESSEE IS NOTHING BUT THE EXERCISE IN ESTIMATION WITH A VIEW TO CLAIM EXCESSI VE DEDUCTION IN THE PROFIT AND LOSS ACCOUNT. THEREFORE, THE ANALYSIS AND ALLOCATION M ADE BY AO BE ACCEPTED. 13.1 LD. CIT(A) FORWARDED THE COPY OF THE REMAND R EPORT TO THE ASSESSEE AND THE ASSESSEE VIDE LETTER DATED 8.7.2011 FURNISHED ITS REJOINDER ON THE REMAND REPORT . THE LD. CIT(A) HAS SATED EXTRACT OF REMAND REPORT AND R EPLY OF ASSESSEE AT PAGES 30 TO 42 OF THE IMPUGNED ORDER. IT IS RELEVANT TO STATE THA T IN THE REJOINDER THE ASSESSEE HAS STATED THAT THOUGH THERE WAS SOME ERRORS IN THE CH ART FILED BY ASSESSEE BEFORE AO IN RELATION TO APPORTIONMENT OF EXPENDITURE BETWEEN PR OJECT AND OPERATIONS BUT COULD NOT GIVE SOME DETAILS DUE TO PAUCITY OF TIME, DURING T HE ASSESSMENT PROCEEDINGS. THAT THE ADDITIONAL EVIDENCE NOW FURNISHED IS REQUIRED TO BE TAKEN INTO CONSIDERATION SO THAT NO PREJUDICE IS CAUSED. THE ASSESSEE ALSO SUBMITTED THAT THE RATIO OF DECISIONS RELIED UPON BY THE AO IN THE REMAND REPORT ARE NOT APPLIC ABLE AND THEY ARE DISTINGUISHABLE, WHICH WERE STATED BY ASSESSEE IN THE REJOINDER. 13.2 LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE STATED THAT THE ASSESSEE HAS RECTIFIED THE MISTAKES BY FILING REV ISED CHART OF THE APPORTIONMENT OF THE EXPENDITURES. BESIDES THIS, NO OTHER FAULT HAS B EEN NOTICED. HE HAS FURTHER STATED THAT NON PRODUCTION OF EVIDENCE IN THE NATURE OF INVOICE S /VOUCHERS, THE AO NEVER ASKED FOR 14 I.T.A. NO.7507/MUM/2011 I.T.A. NO.7111/MUM/201 1 INVOICES/VOUCHERS DURING THE ASSESSMENT PROCEEDINGS . HE HAS FURTHER STATED THAT THE ASSESSEE SUBMITTED VARIOUS DETAILS OF EXPENDITURES DURING THE ASSESSMENT PROCEEDINGS, VIDE LETTERS DATED 16.6.2009, 4.9.2009, 14.9.2009, 22.9.2009, 4.11.2009, 16.11.2009, 20.11.2009, 25.11.2009 AND 30.11.2009. IT IS FUR THER STATED THAT HAD THE AO SPECIFICALLY ASKED THE ASSESSEE TO PRODUCE INVOICES / VOUCHERS, THEY COULD HAVE BEEN PRODUCED BEFORE HIM. HE HAS STATED THAT IN ORDER TO MEET ENDS OF JUSTICE AND EQUITY, IT IS ESSENTIAL TO ADMIT ADDITIONAL EVIDENCES AND ACCO RDINGLY ACCEPTED THE SAID EVIDENCES AFTER REJECTING THE CONTENTION OF AO. 13.3 LD. CIT(A) AFTER SUMMARIZING THE SUBMISSIONS OF THE ASSESSEE HAS HELD VIDE PARA 5.12 AT PAGES 45 TO 52 OF HIS ORDER AS UNDER : 5.12 I HAVE EXAMINED THE VARIOUS SUBMISSIONS AND DETAILS FILED BY THE APPELLANT. I HAVE ALSO EXAMINED THE AO'S ORDER AND REMAND REPORT. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE APPELLANT HAS FILED A REVISED CHART FOR ALLOCATION OF EXPENSES BY WAY OF ADDITIONAL EVIDENC E, WHICH I HAVE ALREADY ADMITTED FOR REASONS CITED SUPRA. I NOTICE THAT THE RE WERE CERTAIN MISTAKES IN THE ORIGINAL CHART SHOWING THE APPORTIONMENT OF EXPENSE S BETWEEN THE PROJECTS AND OPERATIONS. THE MISTAKES HAVE NOW BEEN RECTIFIED BY FILING A REVISED CHART OF THE SAID APPORTIONMENT OF EXPENSES. WITH REGARD TO THE NON-PRODUCTION OF EVIDENCES IN- THE NATURE OF INVOICES/ VOUCHERS, I FIND THAT T HE A.O. NEVER ASKED FOR INVOICES AND VOUCHERS. THE APPELLANT HAS SUBMITTED VARIOUS D ETAILS OF EXPENDITURE DURING ASSESSMENT PROCEEDINGS VIDE LETTERS DATED 16.06.200 9, 04.09.2009, 14.9.2009, 22.09.2009, 4.11.2009,16.11.2009,20.11.2009,25.11.2 009 AND 30.11.2009. HAD THE A.O. SPECIFICALLY ASKED THE APPELLANT TO PRODUC E INVOICES/VOUCHERS, THEY COULD HAVE BEEN PRODUCED BEFORE HIM. I HAVE EXAMINED THE CHART AND THE DETAILS BY THE ASSESSEE BEFORE THE AO, AND AFTER DOING SO, THE FOLLOWING CONCLUSIONS ARE REACHED. FOR THE SAKE OF CLARITY THIS CHART IS REPR ODUCED AGAIN, ALONG WITH MY CONCLUDING REMARKS: ACTUAL AS PER LEDGER PARTICULARS GROSS AMOUNT (RS.) TRANSFERRED TO PROJECT (RS.) OPERATION CONCLUDING REMARKS SALARIES AND BONUS 13,78,24,011 6,17,34,020 7,60,89,991 THIS IS THE SA ME AS THE ORIGINAL CHART. THE AO HAD ALLOCATED A SUM OF RS.10,33,68,008/- TOWARDS PROJECTS @ 75%. IN ANNEXURE 3, OF ITS LETTER, DTD.25.11.2009, THE ASSESSEE HAS GIVEN LIST OF EMPLOYEES AND PERCENTAGE ALLOCATION OF SALARIES TO CWIP. IN THE ABSENCE OF ANY MISTAKE IN THE SAID ALLOCATION NO ADHOC DISALLOWANCE IS CALLED FOR THE ALLOCATION HAS BEEN MADE ON THE BASIS OF ACTUAL MANPOWER ALLOTTED. HENCE, NO DISALLOWANCE IS CALLED FOR. 15 I.T.A. NO.7507/MUM/2011 I.T.A. NO.7111/MUM/201 1 CONTRIBUTION TO PF AND OTHER FUNDS 8,73,986 - 8,73,986 THE ASSESSEE HAS NOT MADE ANY ALLOCATION TOWARDS PROJECTS. IT IS DIFFICULT TO UNDERSTAND WHY PF AND OTHER FUNDS ARE NOT ALLOCATED TOWARDS PROJECTS WHEN SALARY IS BEING ALLOCATED. HENCE, THE AO IS DIRECTED TO ALLOCATE THIS EXPENDITURE IN THE RATIO IN WHICH SALARY AND BONUS HAS BEEN ALLOCATED BY THE ASSESSEE SUPRA. OPERATION SUPPORT COST 77,91,02,786 - 77,91,02,786 THIS IS THE SAME AS THE ORIGINAL CHART. THESE ARE DIRECT COST WITH REGARD TO OPERATIONS AND HENCE, NOTHING IS ALLOCABLE TOWARDS PROJECTS. EVEN THE AO HAS NOT MADE ANY DISALLOWANCE IN THIS REGARD. STAFF WELFARE EXPENSES 12,58,729 - 12,58,729 THIS IS THE SAME AS THE ORIGINAL CHART. THESE ARE DIRECT COST WITH REGARD TO OPERATIONS AND HENCE NOTHING IS ALLOCABLE TOWARDS PROJECTS. EVEN THE AO HAS NOT MADE ANY DISALLOWANCE IN THIS REGARD. RENT 1,05,87,961 45,18,000 60,69,961 THIS IS THE SAME AS THE ORIGINAL CHART. THESE ARE DIRECT COST WITH REGARD TO OPERATIONS AND H ENCE NOTHING IS ALLOCABLE TOWARDS PROJECTS. EVEN THE AO HAS NOT MADE ANY DISALLOWANCE IN THIS REGARD. RATES AND TAXES 10,33,33,544 - 10,33,33,544 THIS IS THE SAME AS THE ORIGINAL CHART. THESE ARE DIRECT COST WITH REGARD TO OPERATIONS AND HENCE NOTHING IS ALLOCABLE TOWARDS PROJECTS. EVEN THE AO HAS NOT MADE ANY DISALLOWANC E IN THIS REGARD. AIRPORT OPERATOR CHARGES 4,89,65,895 - 4,89,65,895 THE AO HAS ALLOCATED 75% OF THIS EXPENDITURE TO PROJECTS. THE ASSESSEE HAS GIVEN DETAILS OF THIS EXPENDITURE AT ANNEXURE 4 OF ITS LETTER, DTD 14.9.2009. THESE CHARGES HAVE BEEN PAID TO ACSA FOR HANDLING 16 I.T.A. NO.7507/MUM/2011 I.T.A. NO.7111/MUM/201 1 OPERATIONS AT THE AIRPORT, AS PER OMDA. HENCE, NO AMOUNT IS ALLOCABLE TO PROJECTS. THE ADDITION MADE ON THIS ACCOUNT IS, THEREFORE, DELETED. INSURANCE 3,11,26,572 - 3,11,26,572 THIS IS THE SAME AS THE ORIGINAL CHART. THE SE ARE DIRECT COST WITH REGARD TO OPERATIONS AND HENCE NOTHING IS ALLOCABLE TOWARDS PROJECTS. EVEN THE AO HAS NOT MADE ANY DISALLOWANCE IN THIS REGARD. TRAVELLING AND CONVEYANCE 5,06,28,382 2,66,98,851 2,39,29,531 IN THE ORIGINAL CHART RS. 7.42 CRORES HAD BEEN SHOWN AGAINST THIS HEAD, AND AN AMOUNT OF RS. 3.76 CRORES WAS CAPITALIZED BY THE ASSESSEE. THE APPELLANT HAS NOW REALLOCATED THIS AMOUNT & STATED THAT ONLY RS. 2.66 CRORES HAS BEEN CAPITALIZED UNDER THIS HEAD ON ACTUALS. I SEE NO REASON TO INTERFERE AS THE AO HAS NOT POINTED OUT ANY DISCREPANCY IN THE ASSESSEES WORKINGS. ADHOC DISALLOWANCE IS NOT CALLED FOR. THE ADDITION MADE OF RS.1.76 CRORES IS THEREFORE DELETED. COMMUNICATION EXPENSES 78,29,699 69,352 77,60,347 THIS IS THE SAME AS THE ORIGINAL CHART. THESE ARE DIRECT COST WITH REGARD TO OPERATIONS AND HENCE NOTHING IS ALLO CABLE TOWARDS PROJECTS. EVEN THE AO HAS NOT MADE ANY DISALLOWANCE IN THIS REGARD. POWER AND FUEL 33,85,94,386 3,78,070 33,82,16,316 I N THE ORIGINAL CHART THE AMOUNT ALLOCATED HAD BEEN SHOWN AT RS. 33.82 CRORES. THE AO HAS ALLOCATED RS. 25.36 CRORES TOWARDS PROJECTS. IN THE REVISED CHART THE APPELLANT HAS ALLOCATED ONLY RS. 3,78,070/- TOWARDS PROJECTS. IT HAS BEEN SUBMITTED THAT POWER AND FUEL EXPENSES FOR PROJECT ARE TO BE MET BY THE CONTRACTORS AS PER THE TERMS OF THE CONTRACT. IN THE CIRCUMSTANCES, 17 I.T.A. NO.7507/MUM/2011 I.T.A. NO.7111/MUM/201 1 NOTHING IS ALLOCABLE TOWARDS PROJECTS OUT OF THE EXPENSES. THE AO IS, THEREFORE, DIRECTED TO DELETE THE ADDITION OF RS. 25.36 CRORES IN VIEW OF THE EXPLANATION. CONTRACT SERVICES 15,41,71,450 - 15,41,71,450 THIS IS THE SAME AS THE ORIGINAL CHART. THESE ARE DIRECT COST WITH REGARD TO OPERATIONS AND HENCE NOTHING IS ALLOCABLE TOWARDS PROJECTS. EVEN THE AO HAS N OT MADE ANY DISALLOWANCE IN THIS REGARD. CONSUMABLE STORES 3,21,00,065 - 3,21,00,065 THIS IS THE SAME AS THE ORIGINAL CHART. THESE ARE DIRECT COST WITH REGARD TO OPERATIONS AND HENCE NOTHING IS ALLOCABLE TOWARDS PROJECTS. EVEN THE AO HAS NOT MADE ANY DISALLOWANCE IN THIS REGARD. HOTEL BOARDING & LODGING CHARGES 1,61,21,955 38,34,190 1,22,87,765 THE AO IS DIRECTE D TO ALLOCATE THESE EXPENSES IN THE SAME RATIO AS TRAVELING EXPENSES, SUPRA. HOSPITALITY EXPENSES 50,09,651 12,57,768 37,51,883 THE AO IS DIRECTED TO ALLOCATE THESE EXPENSES IN THE SAME RATIO AS TRAVELING EXPENSES, SUPRA. PRINTING AND STATIONARY 74,72,284 12,24,562 62,47,722 THIS IS THE SAME AS THE ORIGINAL CHART. THESE ARE DIRECT COST WITH REGARD TO OPERATIONS AND HENCE NOTHING IS ALLOCABLE TOWARDS PROJECTS. EVEN THE AO HAS NOT MADE ANY DISALLOWANCE IN THIS REGARD. REPAIRS AND MAINTENANCE -BUILDINGS -MACHINERY -OTHERS 13,34,74,575 5,09,25,307 79,00,855 - - - 13,34,74,575 5,09,25,307 79,00,855 THE APPELLANT HAS SUBMITTED THAT THESE ARE REPAIRS TO THE EXISTING BUILDINGS AND PLANT & MACHINERY. DETAILS OF THESE EXPENSES WERE PROVIDED VIDE LETTER DATED 16.6.2009. THE AO HAS NOT POINTED OUT ANY DISCREPANCIES TO THESE DETAILS. HENCE, NO DISALLOWANCE IS CALLED F OR. THE ADDITION OF RS.7,45,20,688/- IS, THEREFORE, DELETED. LEGAL AND PROFESSIONAL CHARGES 28,53,24,940 11,46,43,143 17,06,81,798 THIS IS THE SAME AS THE ORIGINAL CHART. THESE ARE DIRECT COST WITH REGARD 18 I.T.A. NO.7507/MUM/2011 I.T.A. NO.7111/MUM/201 1 TO OPERATIONS A ND HENCE NOTHING IS ALLOCABLE TOWARDS PROJECTS. EVEN THE AO HAS NOT MADE ANY DISALLOWANCE IN THIS REGARD. REMUNERATION TO AUDITORS -AUDIT FEES 10,00,000 - 10,00,000 T HIS IS THE SAME AS THE ORIGINAL CHART. THESE ARE DIRECT COST WITH REGARD TO OPERATIONS AND HENCE NOTHING IS ALLOCABLE TOWARDS PROJECTS. EVEN THE AO HAS NOT MADE ANY DISALLOWANCE IN THIS REGARD. DIRECTORS SITTING FEE 3,60,000 - 3,60,000 THIS IS THE SAME AS THE ORIGINAL CHART. THESE ARE DIRECT COST WITH REGARD TO OPERATIONS AND HENCE NOTHING IS ALLOCABLE TOWARDS PROJECTS. EVEN THE AO HAS NOT MADE ANY DISALLOWANCE IN THIS REGARD. PRELIMINARY EXPENSES WRITTEN OFF 1,77,62,220 - 1,77,62,220 THIS IS THE SAME AS THE ORIGINAL CHART . THESE ARE DIRECT COST WITH REGARD TO OPERATIONS AND HENCE NOTHING IS ALLOCABLE TOWARDS PROJECTS. EVEN THE AO HAS NOT MADE ANY DISALLOWANCE IN THIS REGARD. MISCELLANEOUS EXPENSES 3,05,39,645 4,495 3,05,35,150 THE AO HAS ALLOCATED RS. 3.04 CRORES TOWARDS PROJECT. DETAILS OF MISCELLANEOUS EXPENSES HAVE BEEN PROVIDED IN ANNEXURE A TO LETTER DATED 14.9.2009. AS NO DISCREPANCY HAS BEEN POINTED OUT BY THE AO WITH REGARD TO THE SAME, NO ADDITION IS CALLED FOR. THE SAME IS, THEREFORE, DELETED. 2,25,22,88,897 21,43,62,450 2,03,79,26,447 13.4 THUS, THE LD. CIT(A) ALLOWED THE SAID GROUND IN PART AS INDICATED ABOVE. HENCE, DEPARTMENT IS IN APPEAL BEFORE THE TRIBUNAL. 14. AT THE OUTSET, IT MAY BE STATED THAT THE LD. C IT(A) HAS NOT DELETED THE ENTIRE ADDITION MADE BY AO IN RESPECT OF THE ABOVE GROUND, AS MAY BE EVIDENT FROM THE ORDER OF LD. CIT(A), WHICH HAS BEEN STATED HEREINABOVE . BE THAT AS IT MAY, THE LD. DR RELIED ON THE ORDER OF AO AND SUBMITTED THAT THERE WAS N O ACTUAL BIFURCATION OF THE EXPENSES 19 I.T.A. NO.7507/MUM/2011 I.T.A. NO.7111/MUM/201 1 AS THERE WAS NO SCIENTIFIC BASIS ADOPTED BY ASSES SEE. LD. CIT(A) HAS ALLOWED WHAT WAS SUBMITTED BY ASSESSEE. 15. ON THE OTHER HAND, LD. AR SUBMITTED THAT LD. C IT(A) CONSIDERED THE DETAILS OF THE EXPENSES AT LENGTH IN THE LIGHT OF LETTERS SUBMITTE D BY ASSESSEE BEFORE AO AT THE TIME OF ASSESSMENT PROCEEDINGS. HE SUBMITTED THAT THE LD. DR HAS NOT CONTROVERTED THE LETTERS, DETAILS OF WHICH ARE MENTIONED BY LD CIT( A) IN HIS ORDER AND REFERRED PARAS 5.10 AND 5.12. 16. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF AUT HORITIES BELOW AND THE SUBMISSIONS OF LD. REPRESENTATIVES OF THE PARTIES. WE OBSERVE THAT THE AO DID NOT ACCEPT BIFURCATION/APPORTIONMENT OF THE EXPENSES B ETWEEN THE REVENUE AND CAPITAL ON THE GROUND THAT THE ASSESSEE COULD NOT FILE REQUIS ITE DETAILS AND THE SAME WERE MADE ON ADHOC BASIS. ON THE OTHER HAND, WE ALSO OBSER VE THAT AO HAS ALSO NOT DISPUTED THE FACT THAT SOME OF THE ITEMS OF EXPENSES WERE I N THE NATURE OF CAPITAL AND ALLOCATED ALSO ON ADHOC BASIS IN THE RATIO OF 75:25 BETWEEN THE PROJECTS AND REVENUE OPERATIONS. WE OBSERVE THAT THE ASSESSEE FILED REVISED CHART BE FORE THE FIRST APPELLATE AUTHORITY FOR ALLOCATION OF EXPENSES. LD CIT(A) SOUGHT REMAND RE PORT FROM THE AO AND ALSO OBTAINED REPLY FROM ASSESSEE THEREON. LD CIT(A) HAS MENTION ED SPECIFICALLY THAT ASSESSEE FURNISHED VARIOUS DETAILS OF EXPENSES DURING THE CO URSE OF ASSESSMENT PROCEEDINGS VIDE LETTERS DATED 16.6.2009, 4.9.2009, 14.9.2009, 22.9 .2009, 4.11.2009, 16.11.2009, 20.11.2009, 25.11.2009 AND 30.11.2009. HE HAS FURTH ER STATED THAT AO DID NOT ASK THE ASSESSEE TO PRODUCE INVOICES/VOUCHERS AND IF THE SA ME HAD BEEN ASKED FOR, THEY COULD HAVE BEEN PRODUCED BEFORE HIM. WE OBSERVE THAT THE LD. CIT(A) EXAMINED THE CHART AND THE DETAILS OF THE EXPENSES ITEM-WISE AND AFTE R CONSIDERING THE SAME HE HAS HELD THAT NO DISALLOWANCE IS CALLED FOR IN RESPECT OF : (I) SALARIES AND BONUS; (II)- CONTRIBUTION TO PF AND OTHER FUNDS; (III)-AIRPORT OPERATORS CHARGES; (IV)-TRAVELLING AND CONVEYANCES; (V)-POWER AND FUEL; (VI)-HOTEL BOARDIN G AND LODGING CHARGES; (VII)- HOSPITALITY EXPENSES, TO BE ALLOCATED IN THE SAME RATIO AS TRAVELLING EXPENSES; (VIII)- REPAIRS AND MAINTENANCE, BUILDING, MACHINERY AND OT HERS ; (IX)-MISCELLANEOUS EXPENSES. 16.1 THE LD. CIT(A) HAS FURTHER CONSIDERED OTHER IT EMS VIZ (A) OPERATION SUPPORT COST, (B) STAFF WELFARE EXPENSES, (C) RENT, (D) RATES AND TAXES, (E) INSURANCE, (F) COMMUNICATION EXPENSES, (G) CONTRACT SERVICES (H) CONSUMABLE STORES, (I) PRINTING AND STATIONARY, (J) LEGAL AND PROFESSIONAL CHARGES , (K ) REMUNERATION TO AUDITORS-AUDIT FEES, (L) DIRECTORS SITTING FEES AND (M) PRELIMINARY EX PENSES WRITTEN OFF AND HAS STATED THAT EVEN THE AO HAS NOT MADE ANY DISALLOWANCE IN THIS REGARD. 20 I.T.A. NO.7507/MUM/2011 I.T.A. NO.7111/MUM/201 1 16.2 SINCE DR HAS NOT BEEN ABLE TO POINT OUT ANY I NFIRMITY IN THE FINDINGS OF LD CIT(A), WE UPHOLD HIS ORDER AND REJECT GROUND NO.2 OF THE APPEAL TAKEN BY DEPARTMENT. 17. GROUNDS OF APPEAL NOS.3 AND 4 TAKEN BY DEPARTM ENT ARE AS UNDER : 3. ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN DELETING THE DISALLOWANCE OF PAYMEN T OF RS.7,18,12,178/- TO GROUP CONCERNS CLAIMED BY THE ASSESSEE AS REVENUE E XPENDITURE, WITHOUT APPRECIATING THAT THE ASSESSEE HAD FAILED TO JUSTIF Y AND SUBSTANTIATE SUCH PAYMENTS/ REIMBURSEMENT TO THE SISTER CONCERNS. 4. ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN DIRECTING THE AO TO TREAT THE PAYME NTS OF RS.6,25,47,024/- TO ASSESSEES SISTER CONCERNS AS CAPITAL WORK-IN-PROGR ESS AS PER ASSESSEES CLAIM, WITHOUT APPRECIATING THAT THE ASSESSEE HAD FAILED T O JUSTIFY AND SUBSTANTIATE THESE PAYMENTS. 18. IN RESPECT OF EXPENDITURE OF RS. 7,18,12,178/- , AO HAS STATED THAT THE ASSESSEE PAID LARGE SUM OF MONIES TO DIFFERENT GROUP CONC ERNS OF GVK GROUP INCLUDING GVK AIRPORT HOLDINGS PVT LTD, WHICH IS A MAJORITY SHARE HOLDING COMPANY OF THE ASSESSEE. THE ASSESSEE SUBMITTED DETAILS OF PAYMENT TO GVK AIRPORT HOLDING PRIVATE LIMITED VIDE LETTER DATED 20.11.2009 AGGREGATING TO RS.26, 43,59,202/-, DETAILS OF WHICH HAVE BEEN SUMMARIZED BY AO AT PAGE 17 OF THE ASSESSMENT ORDER. HE HAS STATED THAT OUT OF ABOVE EXPENDITURES OF RS.26,43,59,202/-, RS.1 3 CRORES WERE PAID TO GVK INDUSTRIES LTD, TOWARDS BANK GUARANTEE COMMISSION. IT HA S BEEN CONSIDERED FOR CAPITALIZATION AS THE SAME WAS INCURRED IN CONNECTION WITH OBTAI NING TERM LOAN FOR FINANCING THE CAPITAL PROJECTS OF THE ASSESSEE. HOWEVER, IN RES PECT OF REST OF THE EXPENDITURES, AO HAS STATED THAT THERE IS NO JUSTIFICATION. HE HAS STATED THAT THE PROVISIONS OF SECTION 40A(2)(B) APPLIES. LARGE SUM OF MONEY PAID TOWARD S PROFESSIONAL FEES, LEGAL FEES TO GVK AIRPORT HOLDING PRIVATE LIMITED, GVK INDUSTRIE S LTD, AND NOVAPAN INDS. LTD. HAVE NOT BEEN SUBSTANTIATED BY ASSESSEE. HE HAS STATED THAT NATURE OF PROFESSIONAL SERVICES RENDERED BY THESE PARTIES TO THE ASSESSEE ARE NOT K NOWN. THAT THE ASSESSEE HAS NOT DISCHARGED ITS ONUS TO PROVE THAT IT HAS REALLY RE CEIVED ANY SERVICE AND WHETHER THE SAID COMPANIES HAD CAPABILITIES OR TECHNICAL EXPERT ISE TO RENDER SUCH LEGAL/PROFESSIONAL ASSISTANCE TO THE ASSESSEE DURING THE YEAR. AO S TATED THAT THE ASSESSEE HAS CAPITALIZED ONLY A SUM OF RS.19,25,47,024/ UNDER TH E HEAD CAPITAL WORK IN-PROGRESS (CWIP)- INDIRECT EXPENSES FROM THE REIMBURSEMENT MA DE TO GVK GROUP OF COMPANIES. AO HAS STATED THAT EXCEPT BANK GUARANTEE COMMISSIO N OF RS.13 CRORES, THE ASSESSEE HAS NOT BEEN ABLE TO JUSTIFY THE REMAINING CAPITAL EXPENSES OF RS.6,25,47,024/- (RS.19,25,47,024 - RS.13,00,00,000). THEREFORE, THE AO DISALLOWED THE CLAIM OF ASSESSEE OF REVENUE EXPENDITURE OF RS.7,18,12,178/ - PAID TO GVK GROUP AND ALSO 21 I.T.A. NO.7507/MUM/2011 I.T.A. NO.7111/MUM/201 1 DISALLOWED A SUM OF RS.6,25,47,024/- FROM THE CWIP AND REDUCED CWIP TO THAT EXTENT. AO HAS ALSO STATED THAT THE ASSESSEE IS NOT ENTIT LED TO DEPRECIATION ON THE DISALLOWED PORTION OF CWIP IN SUBSEQUENT YEARS. BEING AGGRI EVED, ASSESSEE FILED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 19. THE ASSESSEE FURNISHED BREAK UP OF THE AMOUNT O F RS.26,43,59,202/- PAID TO GVK GROUP AND THE DETAILS OF WHICH ARE GIVEN BY LD . CIT(A) AT PAGE 71 OF THE IMPUGNED ORDER AS UNDER : S.NO. NAME OF PARTY AMOUNT (RS.) CAPITALIZED IN BOOKS REVENUE BY MIAL FUR THER CAPITALIZED BY AO @ 75% BALANCE REVENUE BY AO REASON 1 GVK AIRPORT HOLDING PVT LTD. 1 , 57 , 20 , 141 - 1 , 57 , 20 , 141 1 , 17 , 90 , 106 39 , 30 , 035 REIMBURSEMENT OF EXPENSES 2 GVK INDUSTRIES LTD 23,35,27,111 18,46,65,611 4,88,61,500 4,60,21,125 28,40,375 AS PER LEDGER ACCOUNT OF PARTY 3 GVK JAIPUR - - KISHANGHARH EXPRESSWAY LTD 22,78,924 22,78,924 - - SWEEPER MACHINE FOR PROJECTS 4 GVK POWER AND INFRASTRUCTURE LTD 10,728 - 10,728 8,046 2 , 682 AIR TICKETS OF OPERATIONS PERSONNEL 5 NOVOPAN INDUSTRIES GVK AIRPORT HOLDING PVT LTD 1 , 28 , 22,298 - 1 , 28 , 22 , 298 96 , 16 , 724 32,05,575 PROFESSIONAL FEES FOR OPERATIONS AND MANAGEMENT TOTAL 26,43,59,202 18,69,44,535 7,74,14,667 5,80,61,000 99,78,667 19.1 IT WAS CONTENDED THAT AMOUNT OF RS.1,57,20,1 41/ REPRESENTS REIMBURSEMENT OF THE EXPENSES INCURRED BY GVK ON BEHALF OF THE ASSE SSEE AND CLAIMED BY RAISING DEBIT NOTES WITH SUPPORTING VOUCHERS. SINCE THE AMOUNT WAS PURELY IN THE NATURE OF REIMBURSEMENT OF EXPENSES ALREADY INCURRED, THERE W AS NO REASON FOR MAKING DEDUCTION OF TAX AT SOURCE. IT WAS CONTENTED TH AT COMPLETE DETAILS OF THE EXPENDITURES BACKED BY SUPPORTING VOUCHERS WERE FU RNISHED WITH THE AO VIDE LETTER DATED 14.9.2009. THE ASSESSEE ALSO FURNISHED CO PY OF THE SAID LETTER TO THE LD. CIT(A) ALONG WITH THE DETAILS FILED BEFORE AO. THE ASSES SEE FURTHER CONTENDED THAT FOR THE AMOUNT OF RS.23,35,27,111/-, RELEVANT DETAILS WER E FURNISHED VIDE LETTER DATED 20.11.2009 AND THERE WAS NO FURTHER QUERY. HENCE, RELEVANT BILLS WERE NOT PROVIDED. FURTHER, IT WAS SUBMITTED THAT OUT OF THE AFORESA ID AGGREGATE AMOUNT, AMOUNT OF RS.9,03,79,600/- AND RS.1,10,62,463/- WERE EXPENDI TURE FOR OBTAINING PROFESSIONAL SERVICES FOR WHICH SUPPORTING BILLS ETC WERE SUBMI TTED BEFORE THE AO ON 25.11.2009 22 I.T.A. NO.7507/MUM/2011 I.T.A. NO.7111/MUM/201 1 AND THE ASSESSEE FURNISHED COPY OF THE SAID LETTER TOGETHER WITH ITS ENCLOSURES BEFORE LD.CIT(A). IT WAS FURTHER CONTENDED THAT OTHER A MOUNT OF RS.22,78,924/- RELATES TO PAYMENT MADE TO GVK JAIPUR KISHANGARH EXPRESSWAY LTD BEING COST OF ROAD SWEEPER MACHINE I.E PLANT AND MACHINERY. THE EXPENDITURE W AS DULY REFLECTED IN THE ANNEXURE SUBMITTED TO THE AO ALONG WITH THE ASSESSEES LETT ER DATED 20.11.2009. THERE WAS NO FURTHER REQUISITION FROM THE AO FOR ANY ADDITIONAL INFORMATION AND /OR DETAILS. IT WAS ALSO CONTENDED THAT THE CLAIM OF AMOUNT OF RS.10, 728/- WAS THE AMOUNT OF REIMBURSEMENT OF EXPENSES INCURRED BY GVK POWER AN D INFRASTRUCTURE LTD FOR AND ON BEHALF OF THE ASSESSEE AND THE INFORMATION WAS ALSO GIVEN IN THE CHART ANNEXED TO THE ASSESSEES LETTER DATED 20.11.2009 . DURING THE CO URSE OF ASSESSMENT PROCEEDINGS, AO HAD NOT CALLED FOR ANY DETAILS. THEREFORE, THERE WAS NO OCCASION FOR THE ASSESSEE TO MEET ANY SUCH DEMAND. FURTHER, IN RESPECT OF RS. 1,28,22,298/-, IT WAS SUBMITTED THAT THIS AMOUNT REPRESENT PROFESSIONAL FEE PAID TO NOV APAN INDUSTRIES LTD AND THE COMPLETE DETAILS OF THE EXPENDITURE BY WAY OF A CH ART, BILLS AND SERVICE TAX RETURN OF ASSESSEE SHOWING SET OFF OF SERVICE TAX WERE DULY FILED BEFORE AO VIDE LETTER DATED 25.11.2009. A COPY OF WHICH WAS ALSO FURNISHED BEF ORE LD. CIT(A). IT WAS SUBMITTED THAT NO ADDITIONAL DETAILS WERE CALLED FOR BY AO . THEREFORE, ASSESSEE HAD NO OCCASION TO FURNISH ANY ADDITIONAL DETAILS. 19.2 IT WAS ALSO CONTENDED THAT THE AO WAS NOT JUST IFIED IN REDUCING CWIP BY RS.6,25,47,024/-. IN CASE, AO WAS NOT SATISFIED WITH THE SUBMISSIONS MADE BEFORE HIM AND/OR THE DETAILS FILED BEFORE HIM, AO OUGHT T O HAVE AT-LEAST AGAIN EXPOSED HIS MIND TO ENABLE THE ASSESSEE TO MEET WITH ADDITIONAL REQUIREMENT, IF ANY. THAT THE ASSESSEE RECORDED ADDITIONS TO CWIP DURING THE AS SESSMENT YEAR UNDER CONSIDERATION TO THE EXTENT OF RS.164.22 CRORES AND THE DETAILS W ERE FURNISHED GIVING PARTY-WISE DETAILS OF EXPENDITURES INCURRED, BILLS, VOUCHERS AND BILLS OF PAYMENT MADE TO IDENTIFIED PARTIES. IT WAS SUBMITTED THAT DISALLOWANCE MADE B Y AO WAS NOT JUSTIFIED. 20. LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE HAS DELETED THE AFORESAID DISALLOWANCE VIDE PARA 8.4. AND 8.5 OF TH E IMPUGNED ORDER WHICH READS AS UNDER : 8.4 I FIND THAT THE APPELLANT HAS FILED LETTERS DATED 14.09.2009, 20.11.2009 AND 25.11.2009, DURING ASSESSMENT PROCEEDINGS, WITH IT IS EXPLANATION AND EVIDENCES. COPIES OF THE SAME HAVE NOW BEEN FILED B EFORE ME. I NOTICE THAT THE APPELLANT HAS, VIDE LETTER DATED 14.09.2009, FURNIS HED THE DETAILS OF PAYMENT OF RS.1.57 CRORES TO GVK AIRPORT HOLDING TOWARDS EXPEN SES INCURRED ON THE APPELLANT'S BEHALF, DULY SUPPORTED BY PROPER DEBIT NOTES AND PROPER INVOICES. THIS EXPENDITURE WAS PURELY REIMBURSEMENT OF EXPENS ES AND THEREFORE, NO TAX WAS DEDUCTED AT SOURCE. BESIDES THIS, THE APPELLANT VIDE LETTER DATED 20.11.2009 SUBMITTED THE DETAILS OF TRANSACTIONS WITH THE SIST ER CONCERNS ALONG WITH 23 I.T.A. NO.7507/MUM/2011 I.T.A. NO.7111/MUM/201 1 NECESSARY EVIDENCES TO SUBSTANTIATE THE EXPENDITURE . THE APPELLANT FURTHER FILED A LETTER DATED 25.11.2009, WHEREIN THE INVOICE FOR PAYMENT OF PROFESSIONAL FEES, DETAILS OF SERVICE CHARGES ETC. HAVE BEEN FILED. TH ESE EVIDENCES PROVE BEYOND DOUBT THAT THE SERVICES HAVE BEEN RENDERED BY THE S ISTER CONCERNS TO THE APPELLANT. LOOKING TO THESE DETAILS, I FIND THAT TH E APPELLANT HAS ADDUCED SUFFICIENT EVIDENCES BEFORE THE A.O. TO JUSTIFY THE INCURRING OF THE EXPENDITURE IN THE NATURE OF PAYMENT TO ITS SISTER CONCERNS DURING THE CONDUCT OF ITS BUSINESS. THE CONTENTION OF THE A.O. THAT THE AMOUNT OF RS.13 ,43,59,202/- REMAINED UNVERIFIED AND UNSUBSTANTIATED IS INCORRECT AND WIT HOUT ANY BASIS. 8.5 THUS, THE FACTS IN ITS ENTIRETY CLEARLY REVEAL THAT THERE IS NO REASON TO SAY THAT THE EXPENDITURE IN QUESTION REMAINED UNVERIFIE D AND UNJUSTIFIED. RATHER, I FEEL THAT THE EVIDENCES FILED BEFORE THE A.O. WERE SUFFICIENT AND THE A.O. COULD HAVE VERIFIED THE CLAIM OF THE SAID EXPENDITURE WIT H REFERENCE TO THE DETAILS FILED BEFORE HIM VIDE LETTERS DATED 14.09.2009, 20.11.200 9, 25.11.2009. THE A.O.'S OTHER CONTENTION IS THAT PROVISIONS OF SECTION 40A( 2)(B) ARE ATTRACTED ON THE PAYMENTS MADE TO ITS SISTER CONCERNS. THIS CONTENTI ON OF THE A.O. IS AGAIN DEVOID OF MERIT AS THE A.O. HAS NOT BROUGHT OUT ANY MATERI AL ON RECORD TO PROVE THAT THE PAYMENTS TO SISTER CONCERNS ARE NOT REASONABLE AND EXCESSIVE. THIS REMARK OF THE A.O. HAS THUS NO MERIT. I, THEREFORE, FEEL THAT THE A.O.'S ACTION IN DISALLOWING A SUM OF RS.6,25,47,024/-, FROM CAPITAL WORK IN PRO GRESS, AND ALSO DISALLOWING RS.7,18,12,178/-, CLAIMED AS REVENUE, CAN NOT BE UP HELD. ACCORDINGLY, THE A.O. IS DIRECTED TO ENHANCE WORK IN PROGRESS BY RS.6,25, 47,024/-. THE DISALLOWANCE OF RS.7,18,12,178/- IS ALSO DELETED. HENCE, THE DEPARTMENT IS IN APPEAL BEFORE US. 21. DURING THE COURSE OF HEARING, LD. DR SUBMITTE D THAT HE RELIES ON THE ORDER OF AO AS THE LD. CIT(A) DELETED THE AFORESAID DISALLO WANCE BY ACCEPTING THE ASSESSEES CONTENTION. HOWEVER, LD. AR SUPPORTED THE ORDERS OF AUTHORITIES BELOW AND SUBMITTED THAT ASSESSEE FILED RELEVANT DETAILS BEFORE AO AND SAME WERE ALSO FURNISHED BEFORE THE LD. CIT(A). HE SUBMITTED THAT AO DID NOT ASK FOR FURTHER DETAILS, HENCE, THE SAME WERE FILED BEFORE THE LD. CIT(A) WHICH HE CONSIDERED A FTER SEEKING REMAND REPORT FROM AO. HE SUBMITTED THAT THE ORDER OF LD. CIT(A) IS A REAS ONED ORDER AS PER PARAS 8.4 AND 8.5 THEREOF AND THE SAME BE CONFIRMED. 22. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF AUT HORITIES BELOW AND THE SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PAR TIES. THE LD. DR HAS NOT CONTROVERTED THE FACTS THAT THE ASSESSEE FILED THE LETTERS DATED 14.9.2009, 20.11.2009 AND 25.11.2009 DURING THE COURSE OF ASSESSMENT PROCEEDI NGS WITH REQUISITE EXPLANATION AND EVIDENCE. COPIES OF THE SAME WERE ALSO FILED BY A SSESSEE BEFORE LD. CIT(A). LD CIT(A) AFTER CONSIDERING THE SAID DETAILS HAS STATED THAT OVER ALL EXPENDITURES WERE REIMBURSED TO GVK AND/OR THE ASSESSEE FILED THE C OPIES OF INVOICES AND THE DETAILS OF THE TRANSACTIONS WITH SISTER CONCERN OF THE PAYMENT MADE BY ASSESSEE TO SUBSTANTIATE THE EXPENDITURE. LD. DR HAS NOT CONTROVERTED THE S AID FACTS. WE AGREE WITH LD. AR 24 I.T.A. NO.7507/MUM/2011 I.T.A. NO.7111/MUM/201 1 THAT THE SAID DISALLOWANCE HAVE BEEN MADE BY AO ME RELY ON ASSUMPTIONS AND WITHOUT CONTROVERTING THE FACTS FURNISHED BY ASSESSEE BEFOR E THE AUTHORITIES BELOW. IN THE ABSENCE OF ANY FACT CONTRARY TO THE FINDINGS MENTIO NED IN THE ORDERS OF LD. CIT(A), WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A). THEREFORE, THE GROUND NOS.3 AND 4 OF THE APPEAL TAKEN BY DEPARTMENT ARE R EJECTED. 23. NOW, WE TAKE UP THE APPEAL OF THE ASSESSEE BEI NG ITA NO.7111/MUM/2011. 24. GROUND NO.1 OF THE APPEAL TAKEN BY ASSESSEE REA DS AS UNDER : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN DISALLOWING THE EXPENDITURE ON RESURFACING OF RUNWAY, REPLACEMENT OF FLOORS TILES AND REGULARIZING STORM WATER DRAINS IN CURRED BY THE APPELLANT, AND INSTEAD TREATING THE SAME AS CAPITAL EXPENDITURE EL IGIBLE FOR DEPRECIATION AT THE RATE OF 10%. 25. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSE E CLAIMED EXPENDITURE OF RS.10,38,17,645/- AS REVENUE EXPENDITURE TOWARDS T HE PURPOSE FOR WHICH THE ASSESSEE HAS BEEN CREATED AS JVC AND ENTERED INTO AN AGREEME NT (OMDA) ON 4.4.2006 WITH AAI; FOR THE PURPOSE OF OPERATING, MAINTAINING, DEVELOPING, DESIGNING, CONSTRUCTING AND MODERNIZING THE MUMBAI AIRPORT. AO HAS STATED THAT THE NOTES TO RETURN OF INCOME, ASSESSEE QUALIFIED ITS CLAIM BY STATING THA T THESE EXPENDITURES HAS BEEN INCURRED TO PRESERVE AND MAINTAIN EXISTING ASSETS AND THERE IS NO NEW ASSET /ADVANTAGE CREATED. THE ASSESSEE RELIED ON THE DEC ISIONS OF HONBLE APEX COURT IN THE CASE OF SARVANA SPINNING MILLS REPORTED IN 293 IT R 201(SC), ALLAHABAD HIGH COURT IN THE CASE OF HIMALAYA DRUGS COMPANY REPORTED IN 1 49 CTR 260 (ALL), AND DELHI HIGH COURT IN THE CASE OF VOLGA RESTAURANT 170 CTR 206 (2006) (DEL) TO CLAIM AFORESAID EXPENDITURE AS REVENUE EXPENDITURE. AO STATED THA T IN THE AUDIT REPORT, THE AUDITORS HAVE CLEARLY MENTIONED THAT THE ABOVE AMOUNT OF RS.10.38 HAVE BEEN INCURRED TOWARDS RESURFACING AND REPLACEMENT OF CERTAIN PRO JECTS ASSETS, WHICH ARE CAPITALIZED IN THE BOOKS OF ACCOUNT, BUT IN THE RETURN FILED THE ASSESSEE HAS CLAIMED AS REVENUE EXPENDITURE FOR TAX PURPOSE. AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE ON THE GROUND THAT THE SAID EXPENDITURE HAS BEEN INCURRED AS INTEGRAL PART OF OVERALL CAPITAL EXPENDITURE FOR RENOVATION, EXPANSION AND MODERNIZA TION OF THE AIRPORT. THAT THE ASSESSEE HAS ALREADY RECOGNIZED THESE EXPENDITURES TO BE CAPITAL IN NATURE AND CAPITALIZED IN THE BOOKS OF ACCOUNT PREPARED UNDER THE PROVISIONS OF COMPANIES ACT. HENCE, THE AO DID NOT ACCEPT THE CLAIM OF THE ASSES SEE THAT IT WAS A REVENUE EXPENDITURE. AO AFTER ALLOWING DEPRECIATION AT T HE RATE OF 10% AS APPLICABLE TO 25 I.T.A. NO.7507/MUM/2011 I.T.A. NO.7111/MUM/201 1 BUILDING, MADE THE NET ADDITION OF RS.9,34,35,881/- . BEING AGGRIEVED, ASSESSEE FILED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 26. ON BEHALF OF THE ASSESSEE IT WAS CONTENDED TH AT THE SAID EXPENDITURE WAS INCURRED BY ASSESSEE ON RESURFACING OF RUNWAY, REPL ACEMENT OF FLOOR TILES AND REGULARIZING STORM WATER DRAINS. THAT THE ABOVE EX PENDITURE WAS INCURRED TO PRESERVE AND MAINTAIN THE EXISTING AIRPORT ASSETS. THAT TH E ASSESSEE NEITHER CREATED ANY NEW ASSETS NOR HAD DERIVED ANY BENEFIT OF ENDURING NATU RE . THE ASSESSEE ALSO FURNISHED THE DETAILS OF EXPENDITURE VIDE LETTER DATED 12.5.2010, THE DETAILS OF WHICH ARE MENTIONED BY LD. CIT(A) AT PAGES 3 AND 4 OF THE IMPUGNED ORDER A S UNDER : S.NO. NATURE OF EXPENDITURE AMOUNT (RS.) GRAND TOTAL (RS.) 1 REIMBURSEMENT TO AAI FOR EXPENSES INCURRED ON RESURFACING THE RUNWAY M/S PBA INFRASTRUCTURE LTD. M/S DELITE ENGINEERS M/S MOULIS ADVERTISING SERVICES PVT LTD. M/S JAYA ADVERTISING PVT.LTD M/S GOLDMINE ADVERTISING M/S ROLES ELECTROLUX PVT LTD. 8,81,48,895 25,69,888 74,000 2,53,000 51,000 81,000 9,11,78,223 2 REPLACEMENT OF FLOOR TILES M/S JAYA CONSTRUCTIONS M/S BHAMRA CONSTRUCTIONS 33,57,000 76,92,000 1,10,49,000 3 EXPENDITURE INCURRED ON STRENGTHENING OF STORM WATER DRAINS AND PAID TO M/S J P BROTHERS 15,89,645 GRAND TOTAL 10,38,17,645 IT WAS CONTENDED THAT THE EXPENDITURE WAS INCURRED ONLY TO RECTIFY THE DEFECTS AND DEFICIENCIES IN THE EXISTING RUNWAYS TO ENSURE THE SAME IN USABLE CONDITION CONTINUOUSLY, WITHOUT COMPROMISING SAFETY OF AIRCRAFTS AND PASS ENGERS AND ALSO OF THE AIRPORT PREMISES. SINCE RUNWAY/PREMISES DID NOT BELONG T O THE ASSESSEE, THE QUESTION OF INCURRING ANY EXPENDITURE OF ENDURING BENEFIT DOES NOT ARISES. IT WAS ALSO CONTENDED THAT APPROXIMATE EXPENDITURE ON CONSTRUCTION OF RU NWAY IS IN BETWEEN RS.1100 CRORES TO RS.1300 CRORES AND THE EXPENDITURE OF RS.9.11 CR ORES ON PART RESURFACING OF RUNWAY NO.14/32 DOES NOT BRING INTO EXISTENCE ANY NEW ASSE T. THAT THE SAID EXPENDITURE WAS INCURRED BY WAY OF REIMBURSEMENT OF AAI. IT WAS ALSO CONTENDED THAT NO NEW ASSET HAD BEEN BROUGHT INTO EXISTENCE AND THE WORK WAS A KIN TO RESURFACING OF A ROAD. IT WAS ALSO CONTENDED THAT THE TREATMENT GIVEN IN THE BOOKS OF ACCOUNT DOES NOT EFFECT THE NATURE OF THE EXPENDITURE INCURRED AND THE TAX ABILITY OR OTHERWISE HAS TO BE DECIDED AS PER STATUTE. THE ASSESSEE ALSO DISTINGUISHED TH E CASES RELIED UPON BY AO, DETAILS OF WHICH ARE GIVEN BY LD. CIT(A) AT PAGES 6 AND 7 O F THE IMPUGNED ORDER. 26 I.T.A. NO.7507/MUM/2011 I.T.A. NO.7111/MUM/201 1 26.1 THE LD. CIT(A) HAS STATED THAT HE HAS CONSID ERED THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER AND HAS ALSO THE CASES CITED BY ASSESSEE. THE LD.CIT(A) HAS STATED THAT THE EXPENDITURE INCURRED BY ASSESSEE OF RS.10,38,17,646/- ON RESURFACING OF RUNWAYS AND REPLACEMENT OF FLOOR T ILES AND STORM WATER DRAINAGE ETC HAS BEEN CAPITALIZED BY THE ASSESSEE IN ITS BOOKS O F ACCOUNT. THE LD. CIT(A) CONSIDERING THE TERMS AND CONDITIONS OF OMDA VIZ. ARTICLE 5 , ARTICLE 8 AND ARTICLE 19 HAS HELD THAT THE ASSESSEE IS RESPONSIBLE FOR COMPLETION OF ALL ONGOING CAPITAL- WORK- IN- PROGRESS (CWIP) AT THE AIRPORT. THUS, ASSESSEE HAS MADE THE PAYMENT IN RESPECT OF SUCH CWIP TO THE PARTIES. HE HAS STATED THAT THE SAID EXPENDITURE HAS BEEN INCURRED TOWARDS CWIP AND THUS, CANNOT BE CLAIMED AS REVENUE EXPENDITURE. IT IS IN THE NATURE OF CAPITAL EXPENDITURE. ACCORDINGLY, THE LD. CIT(A ) HAS CONFIRMED THE ACTION OF AO. HENCE, ASSESSEE IS IN FURTHER APPEAL BEFORE THE TR IBUNAL. 27. ON BEHALF OF ASSESSEE IT WAS CONTENDED THAT TH E ASSESSEE CAPITALIZED THE EXPENDITURE OF RS.10,38,17,646/- IN ITS BOOKS OF A CCOUNTS TO CLAIM IT AS REVENUE EXPENDITURE. HE SUBMITTED THAT DETAILS OF THE SAI D EXPENDITURES ARE STATED BY LD. CIT(A) IN PARA 3.2 (ALSO MENTIONED HEREIN ABOVE IN PARA 26) AND IT COULD BE REVEALED FROM THE SAID DETAILS THAT THE SAID EXPENDITURE WA S INCURRED NOT ON CONSTRUCTION OF RUNWAY BUT TO MAINTAIN ALREADY EXISTING RUNWAY. HE SUBMITTED THAT THE SAID EXPENDITURE ALSO INCLUDED A PART OF THE EXPENDITURE INCURRED FO R REPLACEMENT OF TILES OF TERMINAL BUILDING WHICH WAS ALREADY IN EXISTENCE. HE SUBMI TTED THAT THE LD. CIT(A) HAS CONSIDERED IT AS A CAPITAL EXPENDITURE ON THE GROU ND THAT THE ASSESSEE IS GOING TO GET BENEFIT FOR 30 YEARS AND THE ASSESSEE HAS ALSO CAP ITALIZED THE SAID EXPENDITURE IN ITS BOOKS OF ACCOUNT. LD. AR SUBMITTED THAT THE ASSESS EE IS NOT THE OWNER OF THE SAID RUNWAY/PREMISES AND THE EXPENDITURE WAS INCURRED IN RESPECT OF MAINTAINING OF EXISTING ASSETS. HE SUBMITTED THAT ONE SHOULD NOT GO ON THE TREATMENT OF EXPENDITURE GIVEN IN THE BOOKS OF ACCOUNT BUT SHOULD CONSIDER T HE NATURE OF EXPENDITURE TO DECIDE WHETHER IT IS REVENUE OR CAPITAL IN NATURE. LD AR SUBMITTED THAT THE CASES WHICH HAVE BEEN CONSIDERED BY AUTHORITIES BELOW HAVE BEEN CONS IDERED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V/S HI LINE PENS PRIVAT E LIMITED (2008) 306 ITR 182 (DEL) AND THE HONBLE HIGH COURT HAS HELD THAT WHEN T HE EXPENDITURE IS INCURRED BY A TENANT, HE WILL NOT UNDERTAKE EXPENDITURES AS WOUL D ENDURE BEYOND HIS LIKELY PERIOD OF TENANCY OR CREATE A NEW ASSET, UNLIKE IN THE CASE O F OWNER WHO UNDERTAKE EXPENDITURE SO AS TO BRING A NEW ASSET OF CAPITAL NATURE. HE SUBMITTED THAT IN THE SAID CASE, THE HONBLE HIGH COURT HAS HELD THE COST OF REPAIRS T HAT HAVE BEEN INCURRED BY A TENANT IN 27 I.T.A. NO.7507/MUM/2011 I.T.A. NO.7111/MUM/201 1 RESPECT OF SUCH PREMISES WOULD HAVE TO BE ALLOWED U NDER SECTION 30(A)( I) OF THE ACT. HE SUBMITTED THAT ASSESSEE IS NOT AN OWNER OF THE R UNWAY/PREMISES. IT HAS BEEN RESURFACED/REPAIRED TO MAINTAIN AND WORKABLE. HEN CE, EXPENDITURE INCURRED IS REVENUE EXPENDITURE. 28. ON THE OTHER HAND, LD. DR SUPPORTED THE ORDERS OF AUTHORITIES BELOW. HE SUBMITTED THAT THE BILLS PRODUCED COULD NOT DETE RMINE THE NATURE OF WORK. LD. DR SUBMITTED THAT THE ORDER OF LD. CIT(A) BE CONFIRMED . 29. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF AUTH ORITIES BELOW AND THE SUBMISSION OF LD. REPRESENTATIVES OF THE PARTIES. WE OBSERVE THAT THE AUTHORITIES BELOW HAVE CONSIDERED THE SAID EXPENDITURE AS CAPITAL MAINLY FOR THE REASONS THAT THE ASSESSEE ITSELF HAS CATEGORIZED THAT EXPENDITURE IN ITS BO OKS OF ACCOUNT AS CAPITAL IN NATURE. IN DETERMINING WHETHER THE EXPENDITURE IS A CAPITAL EXPENDITURE OR REVENUE EXPENDITURE, ONE HAS TO TAKE INTO CONSIDERATION THE FACTS AND NA TURE OF EXPENDITURE TO DECIDE WHETHER IT IS MADE FOR THE INITIATION OF BUSINESS OR EXT ENSION OF BUSINESS OR SUBSTANTIALLY REPLACEMENT OF EXISTING EQUIPMENT AND TREATMENT GI VEN IN BOOKS OF ACCOUNTS COULD NOT DECIDE THE NATURE OF EXPENDITURE. THE EXPENDITURE WOULD BE CAPITAL IF THE EXPENDITURE HAS BEEN INCURRED TO CREATE NEW ASSETS. HOWEVER, IT WILL BE REVENUE IN NATURE, IF INCURRED MERELY IN FACILITATING ASSESSEES OPERA TION OR ENABLE ASSESSEES BUSINESS TO BE CARRIED ON EFFECTIVELY, WHILE LEAVING CAPITAL UN TOUCHED. THE SIMILAR VIEW IS TAKEN BY THE HONBLE APEX COURT IN THE CASE OF CIT V/S ASSO CIATED CEMENT COMPANIES LTD. (1988) 172 ITR 257 (SC). IF THE EXPENDITURE INCUR RED DOES NOT BRING INTO EXISTENCE ANY NEW ASSETS BUT ONLY FACILITATE OPERATION TO EN SURE THAT THE EXISTING RUNWAY IS MAINTAINED PROPERLY ENSURING SAFETY OF THE AIRCR AFT OR PASSENGER AND ALSO AIRPORT PREMISES AND NO NEW ASSET HAS COME INTO EXISTENCE T HE EXPENDITURE IS REVENUE IN NATURE. WE ARE OF THE CONSIDERED VIEW THAT IT CAN NOT BE SAID THAT BY INCURRING THE EXPENDITURE DETAILS GIVEN HEREINABOVE, A NEW ASSET HAS COME INTO EXISTENCE GIVING RISE TO THE ASSESSEE OF ENDURING BENEFITS. THERE IS NO DISPUTE TO THE FACT THAT THE SAID RUNWAY /AIRPORT PREMISES DOES NOT BELONG TO ASSESSE E BUT BELONG TO AAI AND THE ASSESSEE IS REQUIRED TO MAINTAIN THE SAME UNDER OMDA. WE ARE OF THE CONSIDERED VIEW THAT THE SAID EXPENDITURE HAS BEEN INCURRED BY ASSESSEE ONLY FOR THE PURPOSE OF CARRYING OUT ITS ONE OF THE OBJECT TO RENOVATE AND/ OR REPAIR EXISTING RUNWAY. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF NEW SHORRO CK SPG. & MFG. CO. LTD. V/S CIT (1956) 30 ITR 338 (BOM.) HAS HELD THAT THE THE EX PRESSION CURRENT REPAIRS MEANS EXPENDITURE ON BUILDING, MACHINERY, PLANT OR FURNI TURE WHICH IS NOT FOR THE PURPOSE OF RENEWAL OR RESTORATION BUT WHICH IS ONLY FOR THE PURPOSE OF PRESERVING AND MAINTAINING 28 I.T.A. NO.7507/MUM/2011 I.T.A. NO.7111/MUM/201 1 AN ALREADY EXISTING ASSET WHICH DOES NOT BRING NEW ASSET INTO EXISTENCE OR DOES NOT GIVE THE ASSESSEE NEW OR DIFFERENT ADVANTAGE. WE OBSERVE THAT THE SAID EXPENDITURE HAS BEEN INCURRED ONLY FOR RESURFACING THE LAYER OF THE RUNWAY AND TO PUT NEW TILES TO REPLACE FLOORS. THEREFORE, IT CANNOT BE SAID THA T EXPENDITURE IS IN THE NATURE OF CAPITAL AS IT DOES NOT BRING INTO EXISTENCE ANY NEW ASSET, LEAVING ASIDE THE FACT THAT THE SAID RUNWAY /PREMISES IS NOT OWNED BY ASSESSEE. NO DOUBT , THE ASSESSEE IS TO REDESIGN, UPGRADE, MODERNIZE AND ALSO TO OPERATE AND MAINTAIN AIRPORT BUT THE EXPENDITURE UNDER CONSIDERATION HAS BEEN INCURRED ONLY TO ENSURE T HAT THE EXISTING ASSETS CONTINUED TO BE USED FOR USE SAFELY AND AS PER NORMS TO ENABLE ASSESSEE TO RUN ITS ACTIVITY. HENCE, WE ARE OF THE CONSIDERED VIEW THAT THE SAID EXPENDI TURE IS INCURRED TO FACILITATE OF CARRYING ON BY THE ASSESSEE ITS MAIN BUSINESS FOR WHICH THE ASSESSEE HAS BEEN ENGAGED AND PENDING THE EXPANSION OF THE AIRPORT ETC. HEN CE, WE HOLD THAT THE SAID EXPENDITURE IS A REVENUE IN NATURE AND CANNOT BE S AID TO BE CAPITAL IN NATURE IRRESPECTIVE OF THE FACT THAT THE ASSESSEE IN ITS BOOKS OF ACCOUNT HAS GIVEN TREATMENT OF IT AS CAPITAL IN NATURE. WE MAY STATE THAT THE ASS ESSEE WILL NOT BE ENTITLED FOR DEPRECIATION THEREON AS IT IS HELD TO BE REVENUE IN NATURE. HENCE, GROUND NO.1 OF THE APPEAL TAKEN BY ASSESSEE IS ALLOWED. 30. GROUND NO.2 OF THE APPEAL TAKEN BY ASSESSEE REA DS AS UNDER : 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN RESTRICTING THE DEPRECIATION ALLOWANCE TO 10% APPLICABLE TO BUILDING INSTEAD OF 15% APPLICABLE TO PLANT AND MACHINERY, O N THE EXPENDITURE INCURRED BY THE APPELLANT ON TAXIWAYS AND APRONS, PARKING BA YS AND BRIDGES. 31. WE OBSERVE THAT THE ASSESSEE IN THE RETURN FILE D HAS TREATED THE ASSET AS OF PART OF BUILDING AND CLAIMED DEPRECIATION AT THE RATE OF 10%. AO HAS ACCEPTED THE CLAIM OF ASSESSEE. HOWEVER, WHILE FILING THE APPEAL BEFORE THE FIRST APPELLATE AUTHORITY, THE ASSESSEE CONTENDED THAT THE SAID ASSET IS IN THE F ORM OF PLANT AND MACHINERY AND THEREFORE, THE ASSESSEE IS ENTITLE FOR DEPRECIATION AT THE RATE OF 15%, THE RATE AS APPLICABLE TO PLANT AND MACHINERY AND NOT AT THE RA TE OF 10%. THE LD. CIT(A) DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND HAS STA TED THAT ASSESSEE, IN ITS COMPUTATION OF INCOME HAS ITSELF CONSIDERED THE SAID ASSET TO B E A BUILDING AND IT HAS ONLY BY WAY OF NOTE AN ALTERNATIVE CLAIM HAS BEEN MADE STATING THAT TAXIWAYS, APRONS, HANGAR, PARKING BAYS AND BRIDGES ARE PART OF PLANT ON WHIC H ASSESSEE IS ENTITLE FOR DEPRECIATION AT THE RATE OF 15%. 29 I.T.A. NO.7507/MUM/2011 I.T.A. NO.7111/MUM/201 1 32. THE LD. CIT(A) HAS HELD THAT THE IMPUGNED ASSET S WHICH ARE BASICALLY STRUCTURES AND ARE IN THE NATURE OF PLACES WHICH ARE USED BY A IRCRAFTS FOR TAXING, PARKING. ACCORDINGLY THAT THEY ARE NOT IN THE NATURE OF PL ANT. HENCE, ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 33. DURING THE COURSE OF HEARING, LD. AR REITERATE D THE SUBMISSIONS AS MADE BEFORE THE FIRST APPELLATE AUTHORITY AND STATED THAT APRO NS, TAXIWAYS AND RUNWAY ARE NOT ONLY THE STRUCTURES BUT THEY ARE STRUCTURES FOR SPECI FIC PURPOSES WHICH CAN BE CONSIDERED AS TOOLS FOR THE PURPOSE OF BUSINESS OF THE ASSESS EE. LD AR REFERRED THE DECISION OF THE MUMBAI BENCH OF TRIBUNAL IN THE CASE OF NATIONAL A IRPORTS AUTHORITY OF INDIA V/S CIT [2011] 134 ITD 34 (DELHI), WHEREIN IT WAS HELD THAT THE TERMINAL PLACE USED FOR REGULATION OF AIR TRAFFIC AND COMMUNICATIONAL AND N AVIGATIONAL CONTROL ARE PART OF TOOL OF BUSINESS OF THE ASSESSEE AND THEREFORE THEY CONSTIT UTE PART OF THE PLANT. THAT THE ASSESSEE IS ACCORDINGLY ENTITLE FOR DEPRECIATION A S APPLICABLE ON PLANT AND MACHINERY. THE LD. AR REFERRED THE DECISION OF THE HONBLE AP EX COURT IN THE CASE OF CIT V/S DR. B. VENKATA RAO (2000) 243 ITR 81(SC) AND SUBMITTED THA T IN THE CASE OF AN OPERATION THEATER IN THE HOSPITAL, IT HAS BEEN HELD TO BE A PART OF PLANT AND NOT A PART OF BUILDING. LD. AR REFERRED THE DECISION OF THE HONBLE APEX CO URT IN THE CASE OF CIT V/S KARNATAKA POWER CORPN. (2000) 247 ITR 268 (SC) AND SUBMITTED THAT THE POWER GENERATING STATION BUILDING IS HELD TO BE A PLANT. HE SUBMITTED THAT SUCH STRUCTURES ARE SPECIFIC FOR THE PURPOSE OF BUSINESS OF THE ASSESSE E AND THE ASSESSEE IS ENTITLED FOR DEPRECIATION AT RATE AS APPLICABLE TO PLANT AND MA CHINERY. 34. ON THE OTHER HAND, LD. DR SUPPORTED THE ORDER S OF AUTHORITIES BELOW. HE SUBMITTED THAT ASSESSEE ITSELF HAS CLAIMED DEPREC IATION AT THE RATE OF 10% IN THE RETURN AS APPLICABLE TO BUILDING. 35. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF AUTH ORITIES BELOW AND SUBMISSIONS OF LD. REPRESENTATIVES OF THE PARTIES. THERE IS NO DISPUTE TO THE FACTS THAT RUNWAY, TAXIWAY ARE NECESSARY PART OF AIRPORT OPERATION AND ARE SPECIFIC PART OF INFRASTRUCTURE FOR USE OF AIRCRAFTS. THESE ARE N OT MERELY CONCRETE STRUCTURES. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V/S MAZAGAON DOCK LTD (1991) 191 ITR 460(BOM) HAS HELD THAT DRY DOCK AND WET DOCK CREA TED FOR SHIPS ARE TO BE TREATED AS PLANT AND NOT BUILDING. THE HONBLE APEX COURT HA S HELD IN THE CASE OF KARNATAKA POWER CORPN.(SUPRA) THAT POWER GENERATING STATION B UILDING IS NOT A SIMPLY CONCRETE STRUCTURE BUT A SPECIALLY DESIGNED BUILDING AND IS TO BE TREATED AS PART OF PLANT. SIMILARLY, THE HONBLE APEX COURT HAS HELD IN THE C ASE OF DR. B. VENKATA RAO (SUPRA) THAT THE OPERATION THEATER IN AN HOSPITAL BUILDIN G IS NOT SIMPLY A CONCRETE STRUCTURE BUT 30 I.T.A. NO.7507/MUM/2011 I.T.A. NO.7111/MUM/201 1 NECESSARILY A PART FOR RUNNING OF THE HOSPITAL AND THE ASSESSEE IS ENTITLED TO CLAIM DEPRECIATION AS APPLICABLE TO PLANT AND MACHINERY. IF WE APPLY THE ABOVE, DECISIONS TO THE FACTS OF THE CASE BEFORE US, WE ARE OF THE CONS IDERED VIEW THAT TAXIWAYS AND APRONS, PARKING BAYS CANNOT BE SAID TO BE MERELY CONCRETE STRUCTURES BUT ARE NECESSARY TOOLS FOR OPERATING/USING THE AIRPORT. HENCE, THE SAME ARE TO BE CONSIDERED AS PART OF PLANT AND MACHINERY. THEREFORE, WE HOLD THAT ASSESSEE IS ENTITLED FOR DEPRECIATION AT THE RATE AS APPLICABLE ON PLANT A ND MACHINERY IN RESPECT OF TAXIWAYS, APRONS, PARKING BAYS ETC. HENCE, GROUND NO.2 OF T HE APPEAL TAKEN BY ASSESSEE IS ALLOWED. 36. GROUND NO.3 OF THE APPEAL TAKEN BY ASSESSEE IS AS UNDER : 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN REDUCING THE AMOUNT DEBITED TO CAPITAL W ORK IN PROGRESS BY 3,195,765 BASED ON THE ARGUMENT THAT THE APPELLANT IS UNABLE TO FURNISH CONFIRMATION FROM THE VENDOR. 37. AO STATED THAT THE ASSESSEE MADE AN ADDITION OF CWIP IN THE ACCOUNT OF RS.164.22 CRORES. THE ASSESSEE HAS FURNISHED PARTY -WISE DETAILS OF SUCH EXPENDITURE UNDER DIFFERENT HEADS. AO HAS STATED THAT ASSESSE E WAS ASKED TO FURNISH CONFIRMATION IN RESPECT OF SOME OF THE MAJOR CONTRACTING PART IES INTERALIA IN RESPECT OF L AND T TO VERIFY THE BONAFIDE OF THE EXPENSES BOOKED IN ITS NAME. THE ASSESSEE EXPRESSED HIS INABILITY TO FURNISH THE SAME DURING THE HEARING ON 26.11.2009. AO STATED THAT THE EXPENDITURE INCURRED BY WAY OF PAYMENT TO L&T REM AINED UNVERIFIABLE. HENCE, AO DID NOT ALLOW THE EXPENDITURE PAID TO L&T AS PART OF CW IP OF RS.31,98,450/- AND REDUCED THE SAME FROM THE TOTAL VALUE OF CWIP FOR THE PURP OSE OF ASSESSEES CLAIM OF DEPRECIATION. BEING AGGRIEVED, ASSESSEE FILED APPE AL BEFORE THE FIRST APPELLATE AUTHORITY. 38. ASSESSEE STATED BEFORE THE LD. CIT(A) THAT FO LLOWING DOCUMENTS WERE OBTAINED AFTER THE DATE OF ASSESSMENT ORDER AND THE SAME M AY BE ADMITTED AS ADDITIONAL EVIDENCE UNDER RULE 46A OF THE INCOME TAX RULES, 1 962: I) LETTER DATED 1.8.2006 ADDRESSED TO THE APPELLANT AL ONG WITH RUNNING BILL NO.1 FOR RS.51,80,548/-; II) FORWARDING NOTE OF RUNNING BILL NO.1 FOR REDUCED A MOUNT OF RS.31,96,765/-; III) LETTER DATED 1.1.2007 ADDRESSED TO THE APPELLANT AL ONG WITH RUNNING BILL NO.04 FOR RS.32,58,637/- IV) FORWARDING NOTE OF RUNNING BILL NO. 4 FOR REDUCED AMOUNT OF RS.29,94,040/- V) CONFIRMATION OF ACCOUNTS FOR THE PERIOD 1.4.2006 T O 31.3.2007 39. SINCE THESE WERE ADDITIONAL DOCUMENTS FILED BY ASSESSEE BEFORE LD. CIT(A), HE CALLED FOR REMAND FROM THE AO WHICH WAS SUBMITTED B Y HIM VIDE LETTER DATED 10.5.2011. 31 I.T.A. NO.7507/MUM/2011 I.T.A. NO.7111/MUM/201 1 THE LD. CIT(A) FORWARDED THE COPY OF THE SAID REMAN D REPORT TO THE ASSESSEE TO SEEK HIS REPLY. THE ASSESSEE FILED REJOINDER DATED 8.7.2011 . THE RELEVANT COMMENTS OF THE AO AND REPLY OF THE ASSESSEE IN RESPECT OF REMAND REPO RT ARE STATED BY LD CIT(A) IN PARAS 7.4 AND 7.5 (PAGES 67 TO 69) OF THE IMPUGNED ORD ER. 40. LD. CIT(A) HAS STATED THAT AO NAMED SEVEN PARTI ES AND DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE VIDE LETTER DA TE 30.11.2009 FILED VARIOUS DETAILS IN RESPECT OF THOSE PARTIES INCLUDING PAYMENT DETA ILS IN RESPECT OF VIZ M/S LEIGHTON INDIA CONTRACTORS PVT. LTD, M/S ROMAN TARMAT LTD, M/S KIRBY BUILDING SYSTEMS INDIA LTD, M/S NACO NETHERLANDS AND M/S L&T. HE HAS FU RTHER STATED THAT DETAILS WERE ALSO FILED INTERALIA IN RESPECT OF L&T. THE SAID INFORM ATIONS WERE IN THE NATURE OF LETTERS OF AWARDING THE WORK, RUNNING BILLS ETC FROM M/S L &T. LD. CIT(A) HAS STATED THAT DURING THE APPELLATE PROCEEDINGS, THE ASSESSEE ALSO FILED CONFIRMATION LETTER FROM L&T. HOWEVER, HE HAS STATED THAT IN THE REMAND REPORT, THE AO NOTED THAT NOTICE WAS ISSUED U/S 133(6) OF THE ACT TO SIX PARTIES AND REPLIES W ERE RECEIVED FROM FIVE PARTIES, EXCEPT M/S L&T. IN VIEW OF ABOVE, LD. CIT(A) HAS STATED THAT NO CONFIRMATION HAS BEEN OBTAINED IN SPITE OF NOTICE U/S 133(6) OF THE ACT AND THE ASSESSEE HAS ALSO FAILED TO FILE ANY CONFIRMATION WITH REGARD TO L&T. ACCORDINGLY, THE LD. CIT(A) HAS CONFIRMED THE ADDITION MADE BY AO. HENCE, THE ASSESSEE IS IN FU RTHER APPEAL BEFORE THE TRIBUNAL. 41 IT IS RELEVANT TO STATE THAT IN THE ASSESSMENT ORDER, THE AO HAS MENTIONED THE AMOUNT IN RESPECT OF L&T OF RS.31,98,450/- BUT IN T HE GROUNDS OF APPEAL, THE AMOUNT MENTIONED IS RS.31,95,765/-. 42. AT THE TIME OF HEARING, LD.AR SUBMITTED THAT TH E FINDING OF THE LD. CIT(A) IS CONTRADICTORY AS THE LD. CIT(A) ITSELF HAS MENTION ED AT PAGES 64-65 OF THE IMPUGNED ORDER THAT THE ASSESSEE FILED ADDITIONAL DOCUMENTS BEFORE HIM INCLUDING THE CONFIRMATION OF ACCOUNTS FOR THE PERIOD 1.4.2006 TO 31.3.2007 R ELATING TO M/S L&T. THE LD. CIT(A) HAS ALSO AGAIN STATED THAT THE ASSESSEE FILED CO NFIRMATION OF ACCOUNT IN RESPECT OF M/S L&T FOR THE PERIOD 1.4.2006 TO 31.3.2007 AT PAGE 6 7 (PARA 7.3) OF THE ORDER. HE SUBMITTED THAT M/S L&T BEING MULTINATIONAL COMPANY WOULD NOT MEET ANY COMPROMISES TO THE BENEFIT OF THE ASSESSEE. HE SU BMITTED THAT LD. CIT(A) HAS CONFIRMED THE ACTION OF THE AO TO REDUCE THE CWIP RELATING L&T MERELY BECAUSE NO REPLY WAS GIVEN TO THE AO IN RESPECT OF NOTICE U/ S 133(6) OF THE ACT. LD AR SUBMITTED THAT THE ORDER OF LD. CIT(A) IS CONTRADICTORY IN ITSELF AND THE ASSESSEE FURNISHED REQUISITE EVIDENCE OF THE AMOUNT PAID TO M/S L&T F OR THE CWIP IN THE ASSESSMENT YEAR UNDER CONSIDERATION OF RS.31,98,450/- ALONG WITH C ONFIRMATION OF ACCOUNTS FOR RELEVANT PERIOD. ON THE OTHER HAND, LD. DR RELIED ON THE O RDER OF LD. CIT(A). 32 I.T.A. NO.7507/MUM/2011 I.T.A. NO.7111/MUM/201 1 43. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF AUTH ORITIES BELOW AND THE SUBMISSIONS OF LD. REPRESENTATIVES OF THE PARTIES. WE AGREE WITH THE LD. AR THAT THE LD. CIT(A) ITSELF HAS MENTIONED THAT THE ASSESSEE FILED DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE HIM FORWARDING NOTE OF RUNNING BILL FOR REDUCED AMOUNT OF RS.31,96,765/- AND ALSO INTERALIA SUBMITTED ACCOUNT FOR THE PERIOD 1.4.2006 TO 31.3.2007. WE AGREE WITH THE LD. AR THAT THE EXECU TION OF THE SAID WORK BY L&T HAS NOT BEEN ACCEPTED MERELY BECAUSE M/S L&T HAD NOT S ENT ITS REPLY TO THE NOTICE ISSUED U/S 133(6) OF THE ACT BY AO. HOWEVER, THE LD. CIT( A) HAS NOT DISPUTED DETAILS OF DOCUMENTS FILED BY ASSESSEE, DETAILS OF WHICH HAV E BEEN MENTIONED HEREINABOVE IN PARA 38 OF THIS ORDER INCLUDING THE CONFIRMATION OF ACCOUNT FOR THE RELEVANT PERIOD FROM M/S L&T. CONSIDERING THE FACTS OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT THE EXECUTION OF WORK BY L&T FOR AN AMOUNT OF RS.31,95 ,765/- CANNOT BE CONSIDERED AS NOT GENUINE MERELY BECAUSE THERE WAS NO REPLY FROM M/S L&T IN RESPONSE TO NOTICE ISSUED U/S 133(6) OF THE ACT. THEREFORE, IN THE AB SENCE OF ANY OTHER EVIDENCE ON RECORD, WE DIRECT TO ENHANCE THE CWIP BY THE AMOUN T OF RS.31,95,765/- IN RESPECT OF THE WORK EXECUTED BY M/S L&T. HENCE GROUND NO.3 OF THE APPEAL TAKEN BY ASSESSEE IS ALLOWED. 44. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED, WHEREAS THE APPEAL OF THE DEPARTMENT IS DISMISSED. THE ABOVE ORDER IS PRONOUNCED IN THE OPEN COURT ON 14 TH FEBRUARY, 2014. 0 1 14TH FEBRUARY, 2014 , SD SD ( ' /RAJENDRA) ( . . /B.R.MITTAL) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI: ON THIS 14TH DAY OF FEBRUARY, 2014 . . ./ SRL , SR. PS 33 I.T.A. NO.7507/MUM/2011 I.T.A. NO.7111/MUM/201 1 , )6 76 /COPY OF THE ORDER FORWARDED TO : 1. ( / THE APPELLANT 2. )( / THE RESPONDENT. 3. 8 ( ) / THE CIT(A)- CONCERNED 4. 8 / CIT CONCERNED 5. 6 ) , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI