TaxTMI 
TaxTMI 
2017 (3) TMI 731
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....otice under Section 143(2) of the Income Tax Act, 1961 (in short the Act), was issued to the assessee on 25.08.2011. 2.3. In these proceedings, the Assessing Officer discovered that the assessee had claimed deduction under Section 80-IAB of the Act to the extent of Rs. 4,20,59,087/-. The said deduction included a sum of Rs. 2,52,04,544/-. This amount, represented interest, which, the assessee had earned from security deposit made over by persons / entities, who had taken on lease, the facilities / infrastructure set up in the IT Parks. 2.4. The record would also show that the assessee had filed the prescribed form, i.e., Form 10CCB, wherein, the claim for deduction under Section 80-IAB was restricted to a sum of Rs. 1,68,54,543/-. 3. Based on the aforesaid circumstances, the Assessing Officer on 30.12.2011, passed an order under Section 143(3) of the Act, whereby, the deduction was restricted to a sum of Rs. 1,68,54,543/- The sum of Rs. 2,52,04,544/-, which was interest received by the assessee from security deposit made over by lessees, as indicated above, was treated as income from other sources. Accordingly, a demand was raised. 4. Being aggrieved, the petitioner preferred a....
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....the ld. Authorised Representative relied on judicial decisions and Tribunal decision to support the case. On perusal of the financial statements of the assessee company at page 35 of the paper book the main source of income being lease income and assessee offered interest income referred at Schedule 10 of page 41 of paper book. Further, similar interest income for the assessment year 2007-2008 was obtained. The ld. Authorised Representative could not support with explanation whether assessee has claimed deduction u/s.80-IAB of the Act for the assessment year 2008-09 on interest income. We found the assessee could not substantiate the direct nexus with the industrial undertaking and we rely on decision of Supreme Court in the case of Pandian Chemicals Ltd. V. CIT, 262 ITR 278, where it was held as under : "The words "derived from" in section 80HH of the Income Tax Act, 1961, must be understood as something which has a direct or immediate nexus with the assessee's industrial undertaking. Although electricity may be required for the purposes of the industrial undertaking, the deposit required for its supply is a step removed from the business of the industrial undertaking. Hel....
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....appears for the Revenue, made the following submissions : 8.1. Firstly, according to the learned counsel, the assessee himself, had, in its Profit and Loss Account filed with the return, shown the sum of Rs. 2,52,04,544/- as "income from other sources", and therefore, there was no reason for the Assessing Officer to treat it otherwise. In support of this submission, learned counsel for the Revenue, not only relied upon the contents of the Profit and Loss Account filed with the return, but also relied upon the observations recorded by the Assessing Officer in the assessment order dated 30.12.2011. Specific emphasis was laid by the learned counsel on that part of the assessment order, wherein, it is recorded that the assessee had indicated during the course of the assessment proceedings that, it had, "inadvertently" claimed a deduction in the sum of Rs. 2,52,04,544/-. 8.2. It was, thus, submitted that because of the stand taken by the assessee, as agreed, the deduction was restricted to a sum of Rs. 1,68,54,543/- while, the remaining amount, which is the amount in dispute, was treated as income from other sources. 8.3. As a corollary to this argument, Mr.Ravikumar also laid emphas....
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....tal income received from the lessees of IT Parks facilities. 10.2. Mr.Balaji, learned counsel for the assessee, affirmed the fact that the sum of Rs. 1,68,54,543/- represented, purely, the rental income received from the lessees of IT Parks. 10.3. Therefore, the submission of the learned counsel for the assessee that the revised Form 10CCB should have been taken into account, to our mind, cannot add much mileage to the case of the petitioner, for the reason that before the Assessing Officer, the assessee, despite such situation obtaining, advisedly, continued to take the stand that the claim made in the return for deduction of the entire amount, which is a sum of Rs. 4,20,59,657/- was a mistake that it and had been made "inadvertently". 10.4. It was, in our opinion, open to the assessee, perhaps, at that juncture, to assert that the assessee was entitled to a deduction for the entire amount, and therefore, should be granted deduction qua the same under Section 80-IAB. This aspect of the matter comes through quite clearly, if, one were to peruse the observations made in paragraph 2 of the assessment order : "..... 2. During the year, the assessee had claimed deduction u/s 80-IAB....
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....ndertaking or an enterprise from any business of developing a Special Economic Zone. 11.4. The term "derived", therefore, according to us, is critical in appreciating the kind of deduction, which would fall within the ambit of Section 80-IAB of the Act. 12. For this purpose, we may profitably extract the observations of the Supreme Court in : Pandian Chemicals Ltd., Vs. CIT, [2003] 262 ITR 278 (SC). Before we do that, let us set out the broad contours of the case. 12.1. This was a case, where, the assessee was claiming deduction under Section 80HH of the Act. The assessee had, in this particular case, derived interest from deposits made over to the electricity board for supply of electricity to its industrial undertaking. 12.2. The issue, which arose for consideration before the Supreme Court, was, whether the interest earned on deposits made over to the electricity board were profits and gains "derived" from an industrial undertaking and hence, eligible to the benefit available under the said provision. 12.3. The Supreme Court, rejected the claim of the assessee for deduction and, while doing so, observed that in appreciating the term "derived", the enquiry should stop as soo....
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....use in the definition indeed demands an enquiry into the genealogy of the product. But the enquiry should stop as soon as the effective source is discovered. In the genealogical tree of the interest land indeed appears in the second degree, but the immediate and effective source is rent, which has suffered the accident of non-payment. And rent is not land within the meaning of the definition." This definition was approved and reiterated in 1955 by a Constitution Bench of this court in the decision of Mrs.Bacha F.Guzdar V. CIT, [1955] 27 ITR 1 (SC). It is clear, therefore, that the word 'derived from is section 80HH of the Income Tax Act, 1961 must be understood as something which has direct or immediate nexus with the appellants industrial undertaking. Although electricity may be required for the purposes of the industrial undertaking, the deposit required for its supply is a step removed from the business of the industrial undertaking. The derivation of profits on the deposit made with Electricity Board cannot be said to flow directly from the industrial undertaking itself. ....." (emphasis is ours) 13. Besides the aforesaid judgement, we may also refer to the judgement of ....
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....ich is the source of income. The mere fact that the deposit made was for the purpose of obtaining letters of credit which letters of credit were in turn used for the purpose of business of the industrial undertaking does not establish a direct nexus between the interest and the industrial undertaking. ....." (emphasis is ours) 13.3. There are several other judgements, which take the same view. However, we do not wish to burden our judgment with the views taken in other cases. Suffice it to say that the view taken by us is also the view taken in other cases, such as, Dollar Apparels V. ITO, [2007] 294 ITR 484; Sakthi Footwear V. Assistant Commissioner of Income Tax, [2009] 317 ITR 0194; CIT V. Mereena Creations, 330 ITR 199 ; CIT V. Shri Ram Honda Power Equip, [2007] 289 ITR 475. 14. Before we conclude, we must deal with the submission made by Mr.Balaji that the aforementioned judgements did not deal with the provision at hand. 14.1. In our opinion, what is relevant to note is that the provisions are pari materia and that the ratio of the judgements cited above is, as to what is the meaning to be given to the term "derived". 14.2. The consistent view of the Courts has been that....