TaxTMI 
TaxTMI 
2016 (10) TMI 996
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....are as under:- 2.2. Assessee is a company stated to be engaged in the business of development and operation of Ports, "Special Economic Zones" (SEZ) and related infrastructure. Assessee filed its return of income for AY 2008-09 on 26/09/2008 declaring total income of Rs. 23,20,62,397/-. The case was selected for scrutiny and thereafter assessment was framed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") vide order dated 30/12/2010 and the total income was determined at Rs. 45,85,26,750/-. Aggrieved by the order of the Assessing Officer (AO), assessee carried the matter before the ld.CIT(A), who vide order dated 06/05/2011 (in Appeal No.CIT(A)-VIII/Addl.CIT R-4/681/10-11) granted partial relief to the assessee. Aggrieved by the order of the ld.CIT(A), Revenue is in appeal before us and has raised following ground:- 1. The Ld.CIT(A) has erred in law and on facts in deleting the addition made by the AO by netting of interest income of Rs. 19,58,34,587/- against interest expenses of Rs. 135.37 crores. 2.3. Assessee has raised following grounds in its Cross Objection:- 1. On the facts and in the circumstances of the case, the CIT(A) erred in confirmin....
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.... be netted off against the interest expenditure because it was inextricably linked with the business of the Assessee. The alternate claim was also denied by the AO. He accordingly denied the claim of deduction u/s 80IAB on the interest receipts of Rs. 19,58,34,587/- and thus granted deduction u/s 80IAB of Rs. 193,86,40,506/- as against the Assessee's claim of deduction of Rs. 213,44,75,093/-. Aggrieved by the order of AO, Assessee carried the matter before Ld CIT(A) who held that interest income is not eligible for deduction u/s.80IB by holding as under:- "6. I have carefully considered the relevant facts vis-à-vis the reasons given by the Assessing Officer for the disallowance and the submissions made on behalf of the appellant-company. It is true that the aforesaid interest income of Rs. 19,58,34,587 has been treated by the Assessing Officer as business income and not income from other sources. However, the Assessing Officer has recorded a finding that the said income is not in the nature of "income derived" from the specified business as per provisions of section 80-IAB of the l.T. Act. The case of the Assessing Officer is that before any item of income is considered as ....
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....es of section 80-IAB. It may be true that the IPO funds were required to be invested as per the guidelines of SEBI and it may also be true that the intercorporate deposits were made for some business compulsions for business purposes. Still I do not agree with the proposition of the learned counsel appearing for the appellant-company that such interest income is eligible for deduction u/s.80-IAB. Accordingly, grounds No.1 to 4 are rejected." 3.1 Before Ld CIT(A) Assessee, without prejudice to the main contention that the interest income is eligible for deduction u/s 80IAB of the Act raised an alternate plea of setting of the interest expenditure of Rs. 135.37 crore (rounded off) against the interest income of Rs. 19.58 crore (rounded off). The alternate contention raised by the Assessee was decided in favour of Assessee by CIT(A) by holding as under: "7. Ground No.5 pertains to not allowing set off of the interest expenditure of Rs. 135.37 crores against the interest income of Rs. 19,58,34,587. This was the alternative claim made by the Appellant Company before the Assessing Officer without prejudice to the main contention that the aforesaid interest income is in the nature of i....
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....ited in the written submissions which support the view that if interest receipts are in the nature of business income, the interest expenditure has to be set off against such receipts to arrive at the net figure for the purpose of determining the interest income chargeable to tax as business income. In the present case, the Appellant Company had no option but to invest the IPO funds only in the specified avenues as per the directions of SEBI. The funds were not so invested with the motive or purpose of earning interest income. As a matter of fact, the Assessee has incurred huge interest expenditure and other finance charges on loans raised for business purposes. Further, substantial borrowings have been made even after collecting funds via IPO. But for the requirement of investment of IPO funds only in specified avenue, those funds could have been used by the Appellant Company for paying off the loans, which would have resulted into reduction of the liability for payment of interest. However, this was not possible for the reasons stated above. Similarly, the inter-corporate deposits have not been made by the Appellant Company for earning interest income but the same are specificall....
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....he amounts that were parked, Assessee had received the interest and in such a situation the interest income should be considered to have been derived out of business and therefore eligible for deduction and for this proposition he relied on the decision of Hon'ble Gujarat High Court rendered in the case of Empire Pumps (P) Ltd vs ACIT reported in (2015) 54 taxmann.com 371 (Guj.) and from the aforesaid decision he pointed to the relevant observations of Hon'ble High Court. He also placed on record the copy of the aforesaid decision. He therefore submitted that the same item of receipt cannot be treated differently, namely, once while computing the gross total income and secondly at the time of computing deduction u/s 80IAB of the Act. He submitted that when once the interest income has been considered by the Revenue authorities as business income and not as income from other sources, on same income, the assessee could not be denied the benefit of deduction u/s 80IAB of the Act. With respect to ld.CIT(A)'s direction in netting the interest income of Rs. 19.58 crores (rounded off) against the interest expenses of Rs. 135.37 crores (rounded off), he submitted that ld.CIT(A) had relied ....
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....bstantial questions of law: Tax Appeal No. 186 of 2003 "(1) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in its interpretation of section 80HHA and section 80-I of the Income Tax Act, 1961 in respect of item of interest income of Rs. 2306847/- being business interest from trade debtors and other interest of Rs. 95189/- being interest on misccellaneous receipts? (2) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in its interpretation of section 80HHA and section 80-I of the Income Tax Act, 1961 in respect of item of interest from IDBI amounting to Rs. 50225/-?" .... Tax Appeal No. 371 of 2002 "(1) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in its interpretation of section 80HHA and section 80-I of the Income Tax Act, 1961 in respect of item of interest income of Rs. 852744/- comprising of financial interest on Fixed Deposit, business interest from trade debtors and other interest on miscellaneous receipts? (2) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in its interpretation of section 80HHA ....
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....ision, we are of the opinion that the Tribunal has erred in reducing the other income received by the appellant as the entire income is incidental to manufacturing activities and therefore the deduction under section 80-I is required to be allowed on the gross total income before deduction of 80-HHA and income from others. Therefore, question no. 1 in Tax Appeals Nos. 186 of 2003 and 371 of 2002 is required to be answered in the affirmative i.e. in favour of the assessee and against the revenue." .... 10. Thus, it is clear that the income earned from fixed deposit placed for business purpose cannot be treated as income from other source but must be seen as part of the assessee's business income. In the present case also the assessee was compelled to park a part of its funds in fixed deposits under the insistence of the financial institutions and therefore the income received thereupon cannot be termed to be income from other sources." 5.2. Considering the facts of the present case and in the light of the aforesaid decision of Hon'ble High Court, we are of the view that the interest income received by the assessee is inextricably linked with the business of the Assessee and is ....
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....ts briefly stated are that during the year under consideration the company has earned the dividend income of Rs. 33,01,981/- . The Ld. AO in the impugned order alleged that the appellant has utilized borrowed funds as well as own funds for the purpose of making investments and earning tax free income. Accordingly, he disallowed a part of interest expenditure and other administrative expenditure under Rule 8D of the Income-tax, Rules 1962, as under: Amount in Crores (Rs.) Amount in Crores (Rs.) Expenses directly attributable to earning exempt income Nil Disallowance u/s 14 A - for apportioned interest expense 113,85,93,014* 3,51,92,521 (135.45) (4382.25) 0.5% of 135.45 crores being average investments 67,72,500 Total 4,19,65,021 12. This issue has been discussed by the Assessing Officer at pages - 14 to 16 of his order. The Assessee filed written reply before the Assessing Officer which has been reproduced at pages - 14 and 15 of the Assessment Order. In this reply it was claimed that the entire investment in the mutual fund or shares has come from out of interest free funds and not out of interest bearing borrowe....