2016 (9) TMI 656 - AT - Income Tax

Tribunal rules on deduction for CFS as inland port, allows interest but disallows indirect expenditure.

Asst Commissioner of Income Tax -2 (1), Mumbai Versus Ameya Logistics P Ltd, Mumbai and Ameya Logistics P Ltd Versus Asst Commissioner of Income Tax -2 (1), Mumbai

The Tribunal dismissed the revenue's appeals for both assessment years regarding the deduction under Section 80IA(4) for Container Freight Station (CFS) ... Eligibility of deduction u/s 80IA(4) - assessee company is engaged in the providing “Container Freight Station” (CFS) which has been duly approved as ‘Inland Port’ by Ministry of Finance, Department of Revenue, CBEC in its Circular - Held that:- CFS has been defined as a common user facility with public authority status equipped with fixed installations and offering services for handling and temporary storage of import/export laden and empty containers carried under customs transit by any applicable mode of transport placed under customs control. All the activities related to clearance of goods for home use, warehousing temporary admissions, re-export, temporary storage for onward transit and outright export, trnas-shipment, take place from such stations. Hon’ble Delhi High Court in the case of Container Corporation India Ltd. (2012 (5) TMI 260 - DELHI HIGH COURT ) where the assessee carried out activities of Inland Container Depot; Central Freight Stations and port Containers’ Terminals, the Hon’ble Court held that the profit derived from such activity is eligible for deduction under section 80IA(4). Where assessee is carrying out CGS activities which is nothing but infrastructure facility as defined under section 80IA(4). Accordingly we confirm the order of the CIT(A) and direct the AO to allow the deduction under section 80IA(4). - Decided in favour of assessee Disallowance under section 14A - Held that:- We find that so far as the disallowance of interest expenditure is concerned under Rule 8D(2)(ii), the same is not sustainable, because admittedly, the surplus funds with the assessee far exceeds the investments made and, therefore, in view of the ratio laid down by the Hon’ble jurisdictional High Court in the aforesaid cases, no disallowance can be made. Accordingly, we direct the AO to delete the same. So far as disallowance of indirect expenditure is concerned under Rule 8D(2)(iii), the same stands admitted by the Ld. Counsel, therefore the disallowance under section 8D(2)(iii) is confirmed. As regards the disallowance under section 14A under MAT provision, that is, under section 115JB, the disallowance as sustained under normal provision shall be added to the book profit, therefore grounds raised in Cross objections for both the impugned assessment years stands party allowed. Issues Involved:1. Deduction under Section 80IA(4) for Container Freight Station (CFS) as Inland Port.2. Disallowance under Section 14A regarding indirect expenditure and interest expenditure.Issue-wise Detailed Analysis:1. Deduction under Section 80IA(4) for Container Freight Station (CFS) as Inland Port:The primary issue was whether the assessee was entitled to a deduction under Section 80IA(4) in respect of its Container Freight Station (CFS) being considered as an inland port. The Assessing Officer (AO) had rejected the claim on several grounds, including that CFS is not covered by the definition of infrastructure facility under Section 80IA(4), and that the assessee did not fulfill the conditions required for the deduction. The AO also argued that the structure was not built on BOT or BOLT schemes, and that there was no agreement with the Central or State Government for developing or maintaining an infrastructure facility.The CIT(A) allowed the deduction, concluding that CFS qualifies as an inland port under Section 80IA(4), relying on decisions from various High Courts and the ITAT Special Bench. The Tribunal upheld this decision, noting that the assessee's CFS activities were duly approved as an inland port by the Ministry of Finance, Department of Revenue, CBEC. The Tribunal cited the Delhi High Court's decision in Container Corporation of India Ltd. and the Bombay High Court's decision in Continental Warehousing Corporation, which supported the view that CFS is an inland port and thus eligible for the deduction under Section 80IA(4).2. Disallowance under Section 14A regarding indirect expenditure and interest expenditure:The second issue pertained to the disallowance under Section 14A, which involves the expenditure incurred in relation to income not includible in total income. The AO had made a disallowance under Rule 8D(2)(iii) by taking 0.5% of the average value of investments for indirect expenditure and under Rule 8D(2)(ii) for interest expenditure.The assessee contested the disallowance of interest expenditure, arguing that it had sufficient surplus/interest-free funds exceeding the investments made. The Tribunal agreed with the assessee, referencing the Bombay High Court's decisions in Reliance Utilities and HDFC Bank, which supported that no disallowance of interest should be made when surplus funds exceed the investments. Consequently, the Tribunal directed the AO to delete the disallowance of interest expenditure.However, the Tribunal upheld the disallowance of indirect expenditure under Rule 8D(2)(iii) as admitted by the assessee's counsel. Furthermore, for the disallowance under Section 14A under MAT provisions (Section 115JB), the Tribunal ruled that the disallowance sustained under normal provisions should be added to the book profit.Conclusion:The Tribunal dismissed the revenue's appeals for both assessment years regarding the deduction under Section 80IA(4) for CFS as an inland port. It partly allowed the assessee's cross objections by deleting the disallowance of interest expenditure under Section 14A but upheld the disallowance of indirect expenditure under Rule 8D(2)(iii). The order was pronounced in the open court on 4th August 2016.