TaxTMI 
TaxTMI 
2018 (10) TMI 1821
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....m of deduction under section 10AA of the Income Tax Act, 1961. 4. Brief facts of the case are that the assessee is engaged in the business of trading/speculation in bullion, commodities, shares and securities, currency derivatives, units mutual funds and derivatives. It has established a new SEZ unit. It has filed its return of income in the Asstt.Year 2011-12 on 30.9.2011 declaring total loss of Rs.(-)93,80,592/-. In the Asstt.Year 2012-13 return was filed in 29.9.2012 declaring total income at Rs. 13,94,01,110/- and in the Asstt.Year 2013-14 assessee has declared NIL income in the return filed on 30.9.2013. The case of the assessee was selected for scrutiny assessment in all three years. Notices under section 143(2) were issued upon the assessee. During the accounting year relevant to the Asstt.Year 2011-12, the assessee has claimed deduction of Rs. 7,43,24,689/- under section 10AA of the Act. The AO noticed that the assessee has included interest income of Rs. 27,43,00,870/- in the profits of business of the undertaking. Similarly, in the Asstt.Year 2012-13, it has claimed deduction of Rs. 4,06,52,387/- and included interest income at Rs. 53,67,72,706/- in the business profit....
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....is issue and deleted disallowance made by the AO. The assessee has been granted deduction in three years. 6. Before us, the ld.DR relied upon the order of the AO. On the other hand, the ld.counsel for the assessee contended that this issue has been settled by the Hon'ble Karnataka High Court's judgment rendered in the case of Motorola India Electronis P.Ltd. Vs. CIT. He placed on record copy of the judgment from page nos.72 to 80 of the paper book. He also made reference to the following orders of the ITAT as well as judgment of Hon'ble Gujarat High Court: i) Zaveri & Co. P.Ltd. Vs. CIT, 1395 & 1396/Ahd/2013; ii) Asiastic Colour Chem India Ltd. Vs. ACIT, ITA No.551/Ahd/2008 iii) Hari Orgochem P.Ltd., ITA No.256 & 205 of 2000 iv) Empire Pumps P.Ltd., Vs. DCIT, ITA No.186, 187, 189 & 2003 & 371 of 2002 (Guj); v) Indusa Infotech Services P.Ltd., Vs. DCIT, 45 taxmann.com 34 vi) Yokogawa India Ltd.,Civil Appeal No.8498 of 2013 7. We have duly considered rival contentions and gone through the record carefully. Issue before us is, whether interest income received by the assessee on fixed deposit receipts made by it for the purpose of obtaining letter of credit is to be assessed as....
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....her sources". 39. We find that in the instant case, it is not in dispute that the interest income which were earned by the assessee were from fixed deposit receipts with bank which were made by the assessee in the course of its trading business of import for the purposes of re-export/for obtaining Letter of Credit for its purchases. We thus find that the relevant fixed deposit receipts on which interest were earned were business assets of the assessee acquired in the course and for the purposes of its business. The fixed deposit receipts being business assets, we find no reason as to why interest income earned from such fixed deposit receipts could not be assessed as business income of the assessee. Our above view finds support from the recent decisions of the Hon'ble Karnataka High Court in the case of CIT &anr. Vs. Motorola India Electronics (P) Limited (2014) 265 CTR 94 (Kar.) wherein it was held that: "No doubt Sub-section 10(B) speaks about deduction of such profits and gains as derived from 100% EOU from the export of articles or things or computer software. Therefore, it excludes profit and gains from export of articles. But Subsection (4) explains what is the profit ....
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....ssessee from Indian Bank, the same is to be excluded while computing profits derived from the export of articles or things or services for the purpose of section 10AA of the Act. Sub-section (7) of section 10AA provides the manner in which the profits derived from "export of articles or things or services" is to be computed for the purposes of section 10AA of the Act. Therefore, in view of the above specific provision in the section itself, "profits derived from the export of articles or things or services" cannot be computed in any other manner. Sub-section (7) of Section 10AA reads as under: "For the purposes of sub-section (1), the profits derived from the export of articles or things or services (including computer software) shall be the amount which bears to the profits of the business of the, undertaking, being the Unit, the same proportion as the export turnover in respect of such articles or things or services bears to the total turnover of the business carried on [by the undertaking]: [Provided that the provisions of this sub-section [as amended by section 6 of the Finance (No. 2) Act, 2009 (33of 2009)] shall have effect for the assessment year beginning on the 1st d....
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....Act. We have already noticed that sub-section (1) has been expressly made subject to the provisions of the Section. Therefore, the meaning to be ascribed to the words used in that sub-section should be controlled or tempered by the language used in sub-section (4). So constructed it appears to us that the profits of the business of the undertaking includes not merely the profits derived by or from the undertaking, but also include any profits or income which are incidental to the carrying on of the business of the undertaking." To the same effect is the decision of the Hon'ble Karnataka High Court in the case of Motorola India Electronics (P) Limited (supra)." 8. Similarly, Hon'ble Gujarat High Court in the case of Hari Orgochem P.Ltd., in tax Appeal No.256 & 205 of 2000 held that interest from bank FDR kept as margin has to be assessed as business income, and eligible for deduction under section 32AB, though in that case the issue relates to admissibility of deduction under section 32AB, 80HHA and 80I of the Income Tax Act, but the question was, whether interest income earned on margin money kept with the bank for availing letter of credit is to be assessed as a business in....
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....ought forward loss and unabsorbed depreciation is to be set off before calculating deduction admissible under section 10AA of the Act or not. The ld.counsel for the assessee at the very outset submitted that the issue in dispute is squarely covered by the decision of Hon'ble Gujarat High Court rendered in the case of Indusa Infotech Services P.Ltd., 45 taxmann.com 34. He also submitted that it is covered by judgment of Hon'ble Supreme Court in the case of Yokogawa India Ltd., Civil Appeal No.8498 of 2013. He placed on record copies of these decisions. On the other hand, the ld.DR unable to controvert this contention of the ld.counsel for the assessee. 11. Hon'ble Gujarat High Court in the case of CIT Vs. Indusa Infotech Services P.Ltd. (supra) has formulated the following question: "Whether the Appellate Tribunal has substantially erred in holding that deduction u/s. 10A to be allowed first before setting off unabsorbed loss and depreciation of non-eligible business unit of the assessee ?" 12. Hon'ble Gujarat High Court has decided this question in favour of the assessee i.e. upholding allowance of deduction under section 10A before set off of any balance unabsorbed loss and de....
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....0A (4)] that the unit that is contemplated for grant of benefit of deduction is the eligible undertaking and that is also how the contemporaneous Circular of the department (No. 794 dated 09.08.2000) understood the situation, it is only logical and natural that the stage of deduction of the profits and gains of the business of an eligible undertaking has to be made independently and, therefore, immediately after the stage of determination of its profits and gains. At that stage the aggregate of the incomes under other heads and the provisions for set off and carry forward contained in Sections 70, 72 and 74 of the Act would be premature for application. The deductions under Section 10A therefore would be prior to the commencement of the exercise to be undertaken under Chapter VI of the Act for arriving at the total income of the assessee from the gross total income. The somewhat discordant use of the expression "total income of the assessee" in Section 10A has already been dealt with earlier and in the overall scenario unfolded by the provisions of Section 10A the aforesaid discord can be reconciled by understanding the expression "total income of the assessee" in Section 10A as &#....
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.... we hold that the AO has rightly disallowed the expenditure of Rs. 73,07,018/- by invoking the provisions of Section 14a of the Act read with the Rule 8D of Income Tax Rules. 1962 for computing book profit u/s. 115JB(2) of the Act read with clause (f) to Explanation 1 to clause 115JB(2) of the Act. We, therefore, set aside the orders of the CIT(A) and restore the orders of the AO. We order accordingly. 10.4 In the case of CIT(Central-II) Vs Goetze (India) Limited, the Hon'ble Delhi High Court has in ITA No. 1179/2010 vide order dated 09.12.2013, held that the disallowance u/s 14A is to be taken into consideration for the purposes of calculating book profits u/s 115JA/115JB. The relevant Paras of the judgement are reproduced below:- "36. By order dated 16th May, 2012, the following substantial questions of law were framed in the present appeals:- "(i) Whether the Income Tax Appellate Tribunal was right in holding that while computing book profit under Section 115JA (sic. Section 115JB) of the Income Tax Act, 1961, no disallowance under Section 14A was required to be made? ----- 37. Learned counsel for the respondents-assessee, during the course of hearing, has fairly c....
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..... However, the Tribunal after placing reliance upon the decision of Hon'ble Supreme Court in the case of CIT Vs. Vegetable Products Ltd., 88 ITR 192 (SC) and other decisions has held that it is incumbent upon it follow the decision of Hon'ble Delhi High Court in the case of Bhushan Steel. In this case, Hon'ble Delhi High Court has held as under: xxx xxx xxx 21. Apart from the above, we have a binding precedent before us - One from Hon'ble jurisdictional High Court and other from the Hon'ble Bombay High court. The question considered by the Hon'ble Gujarat High Court in the case of Alembic Ltd. (supra) is as under: "Whether on the facts and in the circumstances of the case and in law, the ITAT was justified in holding that adjustment made on account of disallowance u/s 14A of the Act in computation of book profit u/s 115JB of the Act is not as per law without appreciating that the amount disallowable under section 14A is covered under clause (f) of Explanation to section 115JB(2) and, thus, sa....
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.... the authorities. The addition under Section 115JB of the Act of a sum of Rs. 1,14,43,040/- when was made as an expenditure estimated on earning of dividend income under Section 14A of the Act, without reiterating the rationale of confirming deletion of such amount as has been elaborately done at the time of deciding question No.1, this deletion requires to be confirmed." 8. Taking into consideration the evidence on record and considering the decision of this court in the case of Commissioner of Income-tax-I vs. Gujarat State Fertilizers & Chemicals Ltd. (supra), we are of the opinion that issue Nos. (iii) and (iv) required to be answered in favour of the assessee and against the revenue. In that view of the matter, we answer questions (iii) and (iv) referred to us in favour of the assessee and against the revenue. The appeal of revenue is dismissed. 23. Similarly, Hon'ble Bombay High Court has formulated following question in the case of Bengal Finance & Investments P.Ltd. (supra) and replied as under: (b) Whether on the facts and in the circumstances of the case, and in law, the ITAT is justified in deleting the addition of Rs. 78,84,387/ under clause (f) of Explanation 1 to....
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.... of the ld.representative we have gone through the record. It emerges out from the record that the assessee has dividend income amounting to Rs. 1,02,050/-, Rs. 2,53,000/- and Rs. 3,05,265/- in the Asstt.Year 2011-12 to 2013-14 respectively. The ld.AO has made disallowance of Rs. 4,43,563/-, Rs. 8,31,680/- and Rs. 4,44,563/- under section 14A read with rule 8D of the Income Tax Act. On appeal, before the ld.CIT(A) it was contended by the assessee that dividend income has been made by it from its securities held as stock in trade. Since shares were held as stock-in-trade and dividend income is incidental to the business, therefore, no disallowance under section 14A of the Act r.w. 8D of the Rules ought to be made. For buttressing his contention, the assessee relied upon order of the ITAT in the case of Zaverilal Virjibhai Mandalia Vs. ACIT, 152 TTJ (Ahd)(UD) 20; Yatish Trading Co. P.Ltd. Vs. ACIT, 129 ITD 237 (Mum) and CCI Vs. JOT, 250 CTR (Kar) 291. The ld.CIT(A) has accepted contentions of the assessee and deleted the disallowance. 21. With the assistance of ld.representatives, we have gone through the record. In recent judgment, Hon'ble Supreme Court has upheld the disallowance ....