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Facts
The assessee filed an appeal against a revision order passed by the Pr. CIT under Section 263 for A.Y. 2013-14. The Pr. CIT found the original assessment order under Section 143(3) erroneous and prejudicial to the revenue, alleging that an excess deduction under Section 80IA was allowed for income derived from the sale of scrap and other incidental income.
Held
The Tribunal, relying on its own previous orders and earlier CIT(A) decisions in the assessee's case, held that income from scrap sales and other incidental income is an integral part of the eligible business and is thus entitled to deduction under Section 80IA. The Tribunal concluded that the Assessing Officer had taken a logical and possible view, rendering the Pr. CIT's revision order under Section 263 unsustainable and liable to be set aside.
Key Issues
Whether income from sale of scrap and other incidental income is eligible for deduction under Section 80IA of the Income Tax Act, 1961. Whether the Pr. CIT's revision order under Section 263 was valid when the Assessing Officer had taken a possible and considered view.
Sections Cited
263, 80IA, 143(3)
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Income Tax Appellate Tribunal, Hyderabad ‘ A ‘ Bench, Hyderabad
Before: Shri Vijay Pal Rao, Vice-Shri Madhusudan Sawdia
Per Vijay Pal Rao, Vice President
This appeal filed by the assessee is directed against the revision order dated 26/01/2018 passed by the learned Pr. CIT (Central), Hyderabad, for the A.Y.2013-14.
The assessee has raised the following grounds of appeal:
The assessee has filed its return of income for the year under consideration on 29/09/2013 declaring total income of Rs.13,42,56,510/- after claiming deduction u/s 80IA of the I.T. Act, 1961 at Rs.42,09,58,377/-. The scrutiny assessment u/s 143(3) of the Act was completed on 6/12/2016 at a total income of Rs.81,15,76,061/-. Thereafter, on verification of the assessment record, the learned Pr. CIT noted that the assessee in its P&L Account has shown 2 types of revenue i.e. revenue from operations and other income which includes interest, non- operating income and other income. However, in computation, the profit before the tax taken for arriving at income eligible for deduction u/s 80IA of the Act included all other income earned from sale of metals, scrap and other income excluding interest income, the learned Pr. Cit observed that the Assessing Officer
Page 3 of 10 while passing the assessment order has allowed excess deduction u/s 80IA which resulted under estimation of income to the tune of Rs.24.06 crores. It was further observed that the assessment was completed for not verifying the issue of deduction u/s 80IA for the income from sales of scrap and other income and therefore, the order of the Assessing Officer was found to be erroneous in so far as it is prejudicial to the interest of the Revenue. Accordingly, a show-cause notice u/s 263 of the Act was issued on 8/2/2018 and 5/10/2018. In response, the assessee filed its reply and submitted that the income from sale of metal scrap and other income earned are derived directly from eligible business and entitled for deduction u/s 80IA. The assessee relied upon the order of this Tribunal in case of Visaka Industries Ltd vs. ACIT in dated 27/11/2015 wherein it was held that scrap is part and parcel of any industrial undertaking without which no manufacturing activity is possible. Further, the assessee contended that the Assessing Officer has already examined the issue extensively and taken one of the possible view under lar and therefore, the Pr.CIT cannot take another course of opinion. The learned Pr. CIT was not impressed with the reply of the assessee and passed the impugned order whereby the order passed by the Assessing Officer was set aside by treating the same as erroneous as well as prejudicial to the interest of the Revenue with a direction to the Assessing Officer to redo the same afresh after examining the issue of claiming deduction u/s 80IA of the I.T. Act, 1961.
The learned AR of the assessee has submitted that the Assessing Officer has taken one of the best possible view while allowing deduction u/s 80IA in respect of other income right from the sale of scrap which is part and parcel of the eligible business income of the assessee. The learned AR has further submitted that an identical issue has been considered by this Tribunal in assessee’s own case for the A.Y 2014-15 in ITA NBo.722/Hyd/ 2020 vide order dated 13/04/2022 wherein the Tribunal has upheld the order of the learned CIT (A) allowing the deduction u/s 80IA on the other income which includes the sales of scrap materials. Thus, he has submitted that the impugned order of the learned Pr. CIT u/s 263 would not survive and liable to be set aside.
On the other hand, the learned DR relied upon the impugned order of the learned Pr. CIT passed u/s 263.
We have considered the rival submissions as well as perused the relevant material available on record. The Assessing Officer has discussed the issue of deduction claimed u/s 80IA of the I.T. Act, 1961 while passing the scrutiny assessment u/s 143(3) on 6/12/2016. The Assessing Officer has discussed this issue running into more than 14 pages and then concluded that the assessee will be entitled for deduction u/s 80IA of the Act only if it undertakes development work or operation and maintenance or both in respect of the project. Accordingly, the Assessing Officer has allowed the claim of deduction u/s 80IA except an amount of Rs.75,46,159/- was disallowed on the ground that the Page 5 of 10 assessee did not furnish the copy of agreement in respect of 2 projects but only completion certificates were submitted. He has further submitted that this issue has been considered and decided by this Tribunal in the appeals filed against the order passed by the Assessing Officer u/s 143(3) r.w.s. 263 of the I.T. Act, 1961 dated, 11/01/2022 in & 636/Hyd/2020.
We further note that this Tribunal in assessee’s own case for the A.Y 2014-15 in vide order dated 13/04/2022 has considered an identical issue in Para 38 to 41 as under: “38. After considering the submissions of the assessee, the CIT(A) allowed the assessee's claim of deduction u/s 80IA of the Act by observing as under: “11.4.1. The appellant's claim for deduction u/s 801A was allowed in the appellants case for A.Yr. 2007-08 to A.Yr 2013-14 by learned CIT(A). The only issue now is the claim for deduction u/s. 8O1A on the 'other incomes' i.e., sale of scrap, metal, old batteries, etc. The issues pertaining to Discount, Sale of scrap, Insurance claims, Miscellaneous incomes, Sale of old batteries, Sale of trees, Sale of waste oil, etc. were elaborately discussed and adjudicated in the appellant's own case by Ld. CIT(A) in Asst. Year 2013 14 in Appeal No.10442/2019-20 dated 31.08.2020. From the ledger extracts, it is seen that interest income from M/s. Madhucon Heights Pvt. Ltd., M/s. Madhucon Meghamal Pvt. Ltd. and M/s. Nama Hotel Pvt. Ltd. are on account of loans advanced to Special Purpose Vehicles (SPVs) which are subsidiaries of the appellant company involved in eligible business. As this income is derived from eligible business the same is eligible for deduction u/s. 80IA. Also, the interest from FDRs from Banks is on account of LC/PBG Margin money, EMD Deposits, Securlty deposit for tender, etc. which are incidental to the eligible business of the appellant. It was held in the order for A.Y. 2013-14 that deduction u/s 801A is allowable on Mobilization advances and on interest on short- term deposits kept apart for business purposes relying on the Hon'ble Supreme Court decision in CIT Vs Chambal Fertilizer & Chemicals Ltd (257 taxman 93) (SC) [2018]. Respectfully following the decision in the appellant's case for Asst Year 2013-14, the claim of deduction on Page 6 of 10 'other incomes' of Rs. 29,61,24,000/- is allowed. Accordingly, the grounds pertaining to this issue are ALLOWED.”
Before us, the ld. DR relying on the order of the AO submitted that section 80IA is applicable profit linked incentives in respect of the income derived by the eligible business, the income from sale of metal, scrap and other incomes earned otherwise are not derived directly from eligible business as in the present case from BOT projects and the same are not eligible for deduction u/s 80IA.
The ld. AR of the assessee on the other hand besides relying on the order of the CIT(A) reiterated the submissions made before the CIT(A) and further submitted that the AO has allowed the assessee claim u/s 80IA(4) in the earlier AY 2013-14 and further in earlier AYs 2007-08 and 2008-09 and subsequent years the deduction u/s 80IA was allowed only after taking into consideration the fact that the eligibility of the claim includes sale of scrap materials. He submitted that the CIT(A) after appreciating the facts on record allowed the assessee's claim of deduction u/s 80IA, hence, the order of the CIT(A) be upheld. He relied on the following cases: 1. CIT Vs. Jagadishprasad M. Joshi, 318 ITR 420 (Bom.) 2. DCIT Vs. JVK Infra Pvt. Ltd., 40.1 In addition to the above arguments, the ld. AR referred to the Circular No. 37/2016, dated 2nd November, 2016 issued by the CBDT, which is applicable in the present case.
We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. The CIT(A) after considering the submissions of the assessee in this regard observed in para No. 11.4.1 in his order that the issues pertaining to discount, sale of scrap, insurance claims, miscellaneous incomes, sale of old batteries, sale of waste oil etc., were elaborately discussed and adjudicated in the assessee's own case by ld. CIT(A) in AY 2013-14 in appeal No. 10442/2019-20 dated 31.08/2020 relying on the decision of the Hon'ble Supreme Court in the case of CIT Vs. Chambal Fertilizer & Chemicals Ltd., 257 taxman 93 (SC) [2018]. The assessee company is engaged only in the business of execution infrastructure projects and no other activities were carried out by the assessee. On perusal of the computation of income filed by the assessee which is placed at page No. 2 of the paper book, the assessee has shown income from business at Rs. 38,69,56,252/- to Page 7 of 10
which the assessee has claimed deduction u/s 80IA of the Act. Further, the assessee has shown income from other source, which is interest on bank deposits and others to the tune of Rs. 30,03,73,968/-, which is offered for tax, to which the AO has considered while computing the taxable income of the assessee. The contention of the ld. DR is not acceptable that the income from sale of metal, scrap and other incomes earned otherwise are not derived directly from eligible business as in the present case from BOT projects and the same are not eligible for deduction u/s 80IA. We rely on the decision of the ITAT, Chennai in the case of L&T Transportation Infrastructure Ltd. Vs. ITO, [2011] 12 taxmann.com 499 (Chennai) wherein the coordinate bench has observed as under: "18. The last issue relates to scrap sales. We find force in the submissions of the ld. Authorized Representative in this respect. We find that sale of scrap represents the sale of left over materials which were acquired for developing road. No material has been brought on record by the lower authorities to controvert the above submission of the assessee. Thus, we agree that the above sale of scrap was intimately connected with the business of developing operating and maintaining infrastructure facility and income from such sale goes on to reduce the expenditure of developing the infrastructure facility and truly speaking the same is not an independent income to the assessee. We therefore, delete the disallowance of deduction under section 80-IA in respect of the sale of scrap and allow this part of the ground of the assessee.". As the issue in dispute is similar to the issue decided by the coordinate bench of ITAT, Chennai cited supra, respectfully following the same, we do not find any infirmity in the order of the CIT(A) in allowing the assessee's claim of deduction u/s 80IA. Accordingly, we uphold the order of the CIT(A) on this issue and dismiss the ground raised by the revenue in this regard.”
Therefore, this issue was duly considered and decided by this Tribunal in assessee’s own case by holding that the sale of scrap material is part and parcel of the eligible business income of the assessee and therefore, entitled for deduction u/s 80IA of the I.T. Act, 1961.
By following these earlier orders, this Tribunal in the appeal filed against the order passed by the Assessing Officer in pursuant to the impugned revision order passed u/s 263 has again upheld the order of the learned CIT (A) allowing the claim of deduction u/s 80IA in respect of the other income including the sale of scrap material. The Coordinate Bench of this Tribunal in & 636/Hyd/2020 vide order dated 11/01/2022 held in para 22 and 23 as under: “22. The CIT(A) allowed the assessee's claim by observing as under: " 6.5 I have carefully considered the submissions of the appellant, the order of the Assessing Officer, the additional grounds raised
as well as the comments of the Assessing Officer thereon. As far as the claim of deduction u/s. 80lA is concerned, it is an undisputed fact that the claim has been allowed for the AYs 2007 - 08 and 2008-09, and also, subsequently, for AY 2013-14. The then CIT(A)-12, my predecessor, while adjudicating the appeal for Asst. Year 2009-10, 2010-11 and 2011-12 held that the appellant company is eligible to claim the deduction u/s.80IA of the Act. The facts of the case for the appeal under consideration are identical to the preceding years and the claim of deduction u/s.80IA of the Act is made on the same infrastructural projects which were claimed and allowed in the preceding and succeeding years. Nothing has been brought on record to establish that the projects undertaken by the appellant during the AY under consideration were different from the projects undertaken in preceding or succeeding years. Nothing to this effect has been brought out by the AO during remand proceedings also."
23. We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. The CIT(A) allowed the claim of the assessee following the decision of his predecessor in assessee's own case for earlier AYs. Before us, the ld. DR has not brought any contrary decision in this regard. Therefore, we uphold the order of CIT(A) and dismiss the ground raised by the revenue on this issue in both the appeals under consideration.”
Thus, it is clear that the issue involved in the impugned revision order has already been decided by this Tribunal in favour of the assessee and the view taken by the Assessing Officer while passing the assessment order u/s 143(3) allowing the claim of deduction u/s 80IA was concurred by this Tribunal, then it can safely be held that the view taken by the Assessing Officer was a logical and possible view on this issue. Hence in view of the above facts and circumstances of the case, the impugned order passed by the learned CIT (A) u/s 263 would not survive an the same is liable to be set aside. We order accordingly.
In the result, appeal filed by the assessee is allowed.