AMRITSAR, MAY 03, 2013: THE issues before the Bench are - Whether the assessee is entitled to deduction u/s 80(IA) for only developing a part of the airport and not operating and maintaining the same as these are not the cumulative conditions to be fulfilled; Whether the unutilized quota for export of goods is allowable as revenue loss or capital loss and Whether the advances given to staff and to suppliers remained unrecovered written off are allowable as revenue expenditure. And the verdict goes in favour of the assessee.

Facts of the case

A) Assessee claimed deduction u/s 80IA. AO disallowed the claim made by assessee observing that as per modification made by Finance Act, 2001 as per clause (d) the plain reading in respect of the airport could mean that deduction under section 80IA(4)is admissible to the assessee who develops, operates and maintains an airport. As per the agreement between the assessee and the Airport Authority of India shows that A.A.I. intended to extend the runway for which tenders were called and the assessee got contract to extend the length. Developing, operating and maintenance or airport is a very vast infrastructure facility having numerous operations. It provides for landing and taking off facility to the aircrafts, air travel control facility to control the aircrafts, repair and maintenance facility, hanger facility for aircrafts, facility to scare away the birds to avoid bird hit of the aircrafts, facility for day and night and all weather landing and taking off facility, parking bay for boarding and alighting from the aircraft, entrance and exist of the passenger’s vehicle, security check for passenger and aircrafts, counters to different airlines for checking in the passengers etc. The only agency which provides all these facilities is Airport Authority of India. Thus the deduction u/s 80IA(4) is admissible to Airport Authority of India only. Deduction u/s 80IA can be admissible only when assessee is capable of providing all the facilities. CIT (A) confirmed the order of AO.

Assessee contended that the assessee did not have to develop the entire infrastructure in order to qualify for deduction u/s 80IA. The three conditions i.e. Development, Operation and maintenance were not intended to be cumulative in nature. Merely because assessee is referred to as Contractor in the agreement for development of infrastructure facility would not debar the assessee for claiming the deduction. Section 80IA(4) does not require that there should be a direct agreement between the transferee enterprises and the specified authority. During the year, assessee claimed deduction in respect of two projects (i) construction of runway of airport (ii) construction of bridges. In case of project of construction of bridges, deduction was allowed though the assessee did the same as done in case of airport.

B) Assessee debited a sum on account of quota written off. Assessee explained that it purchased quota for manufacture and export of readymade garments which was tradable. The said quota was to be utilized within a period of three years by exporting the goods. As the assessee had stopped the business of export of Garments and the period has expired during the financial year under assessment, the balance amount lying in Quota account was written off. AO disallowed the claim of the assessee the quotas were for a number of years and was for the enduring benefit of the assessee. The purchase of quota was an capital account and not revenue account. The purchase of quota represents capital invested. Thus, the loss on account of quota written off was a capital loss. CIT (A) confirmed the order of AO.

Assessee contended that even if the assessee had obtained advantage of enduring benefit, the same was on revenue account, as every advantage of enduring nature could not be treated as capital expenditure. If the expenditure is treated in the commercial sense, then the same has been incurred for assessee’s business for trading purposes and to make export without which it was not possible to carry out the export. The assessee had incurred expenditure for facilitating the assessee’s trading operations without which it was not possible for the assessee to conduct the export business and which in fact was for limited period and the period was ending during the impugned year and thereafter that quota had no value and essentially the same has rightly been written off as revenue expenditure.

C) Assessee claimed advances written off as expenditure. AO asked to explain as to why the advances should be allowed as revenue expenditure since granting of loans and advances was not the business of assessee and assessee was not in the business of banking. Assessee contended that during business the assessee was obliged to give advances to labour and supplier of materials. A part of the said amount was sometimes left over and was no recoverable, hence it was written off being business clause. AO disallowed the claim observing that the purpose for giving the advances had not been given by way of any evidence. The payment of advance claimed by the assessee is on capital account and, hence, treated as capital loss. CIT (A) confirmed the order of AO.

After hearing both the parties, the ITAT held that,

A) ++ as per the AO, the three conditions to develop, operate or maintain the airport should be cumulative whereas the law has been amended. AO did not appreciate the new provisions where the word “or” is used which means that each provision is independent to each other and accordingly if a person fulfils any of the above three conditions, then he will be said to have complied with the conditions laid down under section 80IA(4) of the Act. The first limb as mentioned hereinabove is that of ‘developing’ and in the present case, the assessee is claimed to be a developer. Therefore, the A.O. is not justified in reading all the above three conditions cumulatively and accordingly three conditions have to be read separately and if the assessee fulfils any of the three conditions as laid down under section 80IA(4), the claim u/s 80IA cannot be denied. Assessee does not have to develop the entire infrastructure facilities in order to qualify for deduction u/s 80IA of the Act and the assessee has to fulfil either one of the conditions mentioned hereinabove. Section 80IA(4) does not require that there should be a direct agreement between the transferee enterprises and the specified authority. The assessee having fulfilled all the conditions as laid down in section 80-IA of the Act, therefore, is eligible for deduction u/s 80-IA;

B) ++ the quota, in fact, is a license quota which is a tradable commodity. The assessee had purchased Quota which was for a limited period of three years and without purchasing this quota, it was not possible for the assessee to do business and make trading. Even if, the findings of the authorities below are agreed, the assessee had obtained enduring benefit for three years, the same cannot be a conclusive test to be applied blindly and mechanically. Since the assessee had incurred expenditure, which advantage consists facilitation of trading operations of the assessee for enabling the assessee to make the export, the expenditure claimed by the assessee, as ‘quota written off’ during the year, is directed to be treated as revenue expenditure and no disallowance of the same can be made;

C) ++ the assessee is obliged to give advance to labours and suppliers of the material during the course of business, which is sometime left over and is not recoverable and these advances have been left over and had been written off during the year. Even as per section 36(1)(vii), such expenses, when written off by the assessee unilaterally in the post amendment in the Act, has to be allowed, as expenditure and otherwise also this is business expenditure to be allowed under section 36(1)(vii) of the Act. No disallowance on this account can be made.

(See 2013-TIOL-310-ITAT-AMRITSAR)