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2020 (3) TMI 951
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....nd 2013-14. 4. The ld.counsel for the assessee at the very outset submitted that issue in dispute is squarely covered by order of the Tribunal dated 4.3.2019 passed in ITA Nos.630 and 864/Ahd/2017 for the Asstt.Year 2011-12 in assessee's own case. The ld.DR was unable to controvert this contention of the ld.counsel for the assessee. 5. With the assistance of the ld.representatives, we have gone through the record carefully. It emerges out from the record that the assessee-company was incorporated in the year 2003 and engaged in the business of retail jewellery, trading in bullions, transactions in commodity exchanges, power generation through wind mills. It set up a unit in SEZ in the year 2007 which commenced its business on 26.10.2007. As per the provisions of section 10AA of the Income Tax Act, 1961 "entrepreneur" referred in clause (j) of section 2 of the Special Economic Zones Act, 2005 (SEZ Act) means who begins to manufacture or produce articles or things or provides any services during the previous year commencing from the assessment year 2006-07 is eligible for hundred percent deduction of profit and gains derived from export of such articles etc. for a period of fiv....
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.... explanation of the assessee as to why this deduction be not disallowed. After referring various expression "service" and "entrepreneur" employed in SEZ Rules, the ld.AO has disallowed the deduction. 7. We find that detailed finding recorded by the AO has been reproduced by the ld.CIT(A) in the impugned order. The ld.CIT(A) thereafter took cognizance of finding recorded by her predecessor in the Asstt.Year 2011-12 and deleted the disallowance made by the AO. The finding of the ld.CIT(A) in the Asstt.Year 2011-12 has been upheld by the Tribunal. 8. Before taking note of the finding of the Tribunal, we deem it appropriate to take cognizance of next ground of appeal also because in the assessment year 2011-12, the Tribunal has recorded a common finding on the issue regarding admissibility of deduction under section 10AA as well as quantification of eligible amounts on which deduction is admissible. In the present two years, apart from ground nos.1 and 2 in ground no.3, Revenue has pleaded that the ld.CIT(A) has erred in holding that interest income amounting to Rs. 252,02,01,717/- and 2,92,00,000/- are eligible for grant of deduction under section 10AA in the Asstt.Year 2012-13 ....
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....re operations of SEZ unit eligible for claim u/s.10AA of the Act and hence, assessee had legally & factually made a wrong. 3.43 In view of the above, it is held that (i) The assessee is not eligible for any claim of deduction u/s. 1OAA of the Act. (ii) Since the assessee is not eligible for any claim of deduction u/s.10AA of the Act, it is not eligible for any reduction in book profit on account of profit of SEZ unit. (iii) The interest income on bank FDR of Rs. 219,11,58,218/- is in the nature of 'income from other sources' and therefore, the assessee is not eligible for claim of exemption u/s.10AA on interest income earned on bank FDR." 13. Aggrieved, assessee carried the matter in appeal before the learned CIT(A) who reversed the action of the Assessing Officer and observed as follows :- "5.2 I have considered the assessment order, facts of the case and the submissions made by the appellant, as well as the case laws relied on by the appellant. In his order, the AO held that the inclusion of interest on FDRs as profits of business of SEZ unit was not correct and held that the same was actually income from other sources....
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....rt, 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 derived from export of articles as mentioned in Sub-section (1). The substituted Sub-section (4) says that profits derived from export of articles or things or computer software shall be the amount which bares to the profits of the business of the undertaking and not the pr....
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....s on an identical issue, it is held that interest income would form part of the profit of the business and would be included for arriving at profits derived from export to be calculated u/s. 10AA(7) of the I.T. Act and the disallowance made by the Assessing Officer is deleted. Grounds of appeal Nos. 3, 4 & 5 are allowed. 14. The Assessing officer is aggrieved of the relief so granted by the learned CIT(A) and is in appeal before us. 15. We have heard the rival contentions, perused the material on record and considered facts of the case in the light of the applicable legal position. 16. We find that the above issue is covered, in favour of the assessee, by a co-ordinate bench decision dated 7th May 2014 in assessee's own case for the assessment year 2009-10 and 2010-11 wherein the co-ordinate bench has, inter alia, observed as follows :- "36. The next issue relates to the order of Commissioner of Income Tax whereby it was held that interest income earned by the assessee on its fixed deposit receipts with the bank is to be taxed under the head "income from other sources" and consequentially not entitled to exemption u/s 10AA of the Act and conseque....
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....ceipts 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 derived from export of articles as mentioned in Sub-section (1). The substituted Sub-section (4) says that profits derived from export of articles or things or computer software shall be the amount which bares to the profits of the business of the undertaking and not the profits and gains from export of articles. Therefore, profits and gains derived from export of art....
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....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 (33 of 2009)] shall have effect for the assessment year beginning on the 1st day of April, 2006 and subsequ....
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..... 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 subsection (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). 43. In view of the above, we find that the view adopted by the Assessing Officer in this regard in the assessment order of not excluding interest income which was assessed as business income of the assessee for computing "profits derived from export of articles or things or services" was a possible view and therefore, the same could not be interfered in exercise of powers available u/s 263 of the Act. 44. We also observe that the Commissioner of Income Tax in the impugned order has observed that....
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....ts of the instant case was found to be a possible view and therefore, we have to also hold that set-off of brought forward business loss against such business income as done by the Assessing Officer in the assessment order was a possible view. Therefore, we set aside the order of the Commissioner of Income Tax to the extent it directed that as interest income earned on fixed deposit receipts taxed as income from other sources, the assessee would not be entitled for set-off of brought forward business loss against such interest income." 17. While the above observations were in the context of revision proceedings under section 263, these observations were equally applicable on merits. The coordinate bench has dealt with the matter on the merits as well. Respectfully following the co-ordinate bench decision (supra), we uphold the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter. Learned CIT(A) has merely followed the decision of the co-ordinate bench, and we see no infirmity in that approach. In any case, learned Departmental Representative has not pointed out any specific reasons as to why the said decision should not be followed. ....
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....position that interest was earned on placing the fixed deposits which were wholly made for availing the letter of credit facilities, the same becomes part of business profits and is eligible for benefit of Section 10AA. This approach is fully supported by a coordinate bench decision in assessee's own case, in the context of revision proceedings, in the case of Ausom Enterprise Lytd (Order dated 15th October 2018 in ITA No. 857/Ahd/17) and by Hon'ble Karnataka High Court's full bench judgment in the case of CIT Vs Hewlwtt Packard Global Soft Ltd [(2017) 87 taxmann.com 182 (Kar FB)]. 20. Whichever way we look at it, thus, the conclusions arrived at by the learned CIT(A) are indeed correct and call for no interference. In view of these discussions, and bearing in mind entirety of the case, we approve the conclusions arrived at by the learned CIT(A). No interference is called for. 21. Ground nos.1 & 4 are thus dismissed." 10. On an analysis of the above facts and circumstances, we are of the view that there is no disparity on facts. The assessee has claimed deduction under section 10AA for the first time in the year 2009-10 which was allowed by the AO himself, but ....
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.....Year 2012-13 and Rs. 67,30,601/- in the Asstt.Year 2013-14. Dissatisfied with the disallowance, assessee went in appeal before the ld.CIT(A) who deleted the disallowance partly. The ld.CIT(A) was of the view that the assessee has sufficient interest free funds, and therefore, no interest expenditure required to be disallowed for earning tax free income. In this way, the ld.CIT(A) has restricted the disallowance to Rs. 17,93,818/- and Rs. 23,06,949/- as against Rs. 36,59,563/- and Rs. 67,30,601/- in the Asstt.Years 2012-13 and 2013-14 respectively. Against this partial deletion of the disallowance, Revenue is in appeal before us. Qua confirmation of part disallowance, the assessee is in appeal before the Tribunal. 14. With the assistance of the ld.representatives, we have gone through the record carefully. As far the issue agitated by the Revenue is concerned, we find that the assessee has sufficient interest free funds, and no interest amount deserves to be disallowed. The ld.CIT(A) has recorded a finding that the assessee has Rs. 305 crores in its share capital and reserves against which it has made investment of Rs. 32.73 crores in the Asstt.Year 2012-13. Thus, interest free ....
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....income. This situation has been answered by the Hon'ble Gujarat High Court in the case of Corretech Energy P.Ltd., 372 ITR 97 by propounding that if there is no tax free income, then there could not be any expenditure. This view was expressed by the Hon'ble Delhi High Court in the case of Cheminvest (supra) while reversing the conclusion of the Special Bench of the Tribunal. Therefore, looking into the facts of the case from all these angles, we are of the view that ends of justice would be meet if we restrict the disallowance to rupees seven lakhs in the Asstt.Year 2012-13, and rupees twelve lakhs in the Asstt.Year 2013-14, which will be sufficient for taking care of administrative expenditure for making investment and earning exempt income. Accordingly, grounds raised by the assessee are partly allowed. 16. Now coming to the issue of inclusion of disallowance made under section 14A in the book profit determined under section 115JB of the Income Tax Act, 1961, the ld.counsel for the assessee at the very outset submitted that this issue is covered in favour of the assessee by the decision of Special Bench in the case of ACIT Vs. Vireet Investments P.Ltd., 165 ITD 27 (SB) wher....
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....off against other income in earlier years. After relying on some case laws, as mentioned in his impugned order, the ld.AO rejected claim of the assessee, and the deduction was added back to the total income of the assessee. Aggrieved by the action of the AO, the assessee went in appeal before the ld.CIT(A). The ld.CIT(A) after going through order of the AO and considering order of his predecessor in the assessee's own case for the assessment year 2011-12, allowed the claim of the assessee. Revenue is aggrieved by this order of the ld.CIT(A), and hence, before the Tribunal. 21. Before us, the ld.DR relied on the order of the AO, while the ld.counsel for assessee relied upon order of the ld.CIT(A). The ld.counsel for the assessee further relied upon order of the ITAT in the assessee's own case in ITA No.630 and 864/Ahd/2017 for the Asstt.Year 2011-12 wherein similar claim of the assessee was allowed by the Tribunal. He placed on record copy of order of the Tribunal dated 4.3.2019. 22. We have heard both the sides and gone through the record carefully. We find that similar claim of the assessee was allowed in the Asstt.Year 2011-12. For adjudication of this issue, it would su....
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....igh Court in the case of Velayudhaswamy Spinning Mills vs. ACIT 340 ITR 463, decided a similar issue in favour of the appellant on an identical issue. The decision in the case ofSadbhav Engineering Ltd. vs DC/7 in ITA No. 610/Ahd/2008, 1834 & 2054/Ahd/2009 1835 & 2Q55/Ahd/2009 and 2053/Ahd/2009, wherein the Hon. Tribunal has held as under- " We find that section 801A of the Act which has been substituted with effect from 01.04.2000 provides that where the gross total income of an assessee includes any profits and gains derived by an undertaking from eligible business referred to in sub section 4, there shall, in accordance with an subject to the provision of section, be allowed in computing the total income, the deduction of an amount equal to 100% of the profits and gains derived from such business for 10 consecutive years. Substituted sub section (2) of section 80IA, provides that an option is given to the assessee for claiming any 10 consecutive assessment years out of 15 years beginning from the year in which the undertaking or the enterprise develops and begin the operate. The 15 years is the outer limit within which the assessed can choose of deduction for an eligibl....
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.... and then only deduction under section 80IA can be determined. This is the true import of section 80IA(5)." The CBDT has also issued a Circular No.1/2016 dated 15.12.2016 wherein it has been clarified that the initial Asst. year for the purpose of Section 801 A(5) is not the year of commencement of production, but it is the first year of claim of deduction at the assessee's choice out of block period of 10 years. In the appellant's case, the losses incurred by it were already set off and adjusted against the profits of the earlier years. During the current Assessment year 2011- 12, the appellant exercised the option under s.80-IA(2). During the relevant period, there was no unabsorbed depreciation or loss of t he eligible undertaking and the same were already absorbed in the earlier years. Thus there was positive profit during the year and the deduction claimed was correct as per the provisions of section 80IA(5). 6.3 The facts of the case continue to be same and hence following the clarification as per circular No.1 /2016 issued by CBDT, ratio of Hon'ble ITAT Ahmedabad's judgment in the case of Sadbhav Engineering Ltd. (supra) as well as relying u....