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Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE
Before: SHRI INTURI RAMA RAO & SHRI S. S. VISWANETHRA RAVI
ORDER PER INTURI RAMA RAO, AM: These are the appeals filed by the assessee directed against the common orders of ld. Commissioner of Income Tax (Appeals)- 11, Pune [‘the CIT(A)’] dated 09.08.2016 for the assessment years 2012-13 and 2013-14. 2. Since the identical facts and issues are involved in the above captioned two appeals, we proceed to dispose of the same by this common order.
2 & 2589/PUN/2016 3. For the sake of convenience and clarity, the facts relevant to the appeal in ITA No.2588/PUN/2016 for the assessment year 2012-13 are stated herein. ITA No.2588/PUN/2016, A.Y. 2012-13 : 4. Briefly, the facts of the case are that the appellant is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of execution of civil, electrical and mechanical contract. The return of income for the assessment year 2012-13 was filed on 30.09.2012 declaring total income of Rs.48,33,060/- after claiming exemption u/s 80IA of the Income Tax Act, 1961 (‘the Act’). Against the said return of income, the assessment was completed by the Assistant Commissioner of Income Tax (Central) Circle, Kolhapur (‘the Assessing Officer’) vide order dated 31.12.2014 passed u/s 143(3) of the Act at total income of Rs.18,29,19,275/-. While doing so, the Assessing Officer had disallowed the claim for deduction u/s 80IA by holding that the appellant is a small works contractor. The Assessing Officer also brought to tax under the head “income from other sources” of miscellaneous receipts like VAT reimbursement, interest received on bank deposits, discount received from sundry creditors etc and 3 ITA Nos.2588 & 2589/PUN/2016 held such items are not pertaining to the business of exemption of contract works does not qualify for deduction u/s 80IA of the Act. The Assessing Officer also made disallowance of Rs.90,00,400/- u/s 14A and disallowance of Rs.1,92,695/- u/s 37(1) of the Act.
Being aggrieved by the above disallowances, an appeal was preferred before the ld. CIT(A), who vide impugned order while allowing the claim of the appellant held that it is entitled for claim of deduction u/s 80IA, however, held that the miscellaneous receipts are not connected to the eligible business of the assessee for deduction u/s 80IA of the Act. Accordingly, the ld. CIT(A) confirmed the addition under the head “income from other sources”. As regards to the addition u/s 14A, the ld. CIT(A) confirmed the order of the Assessing Officer and the addition of ad-hoc disallowance u/s 37(1) also confirmed, as this ground of appeal
was not pressed.
6. Being aggrieved by the above decision of the ld. CIT(A), the assessee is in appeal before us in the present appeal.
7. Ground of appeal no.1 challenges the findings of the ld. CIT(A) that the income assessed to tax on account of reimbursement of VAT reimbursement, interest received on bank deposits, discount received from sundry creditors etc are not eligible 4 & 2589/PUN/2016 for deduction u/s 80IA of the Act. The ld. AR submitted that the above items of income were received are inextricably connected with the eligible business of the assessee and forming part of the business income which is eligible for deduction 80IA of the Act.
On the other hand, ld. CIT-DR placed reliance on the orders of the lower authorities.
We heard the rival submissions and perused the material on record. The issue of eligibility of the profits of the assessee company for deduction u/s 80IA is not before us. In the present appeal, the issue is whether the income earned by the assessee in the form of refund of VAT, interest income on the FDs with the bank shall qualify for deduction u/s 80IA of the Act or not?. The provisions of sub-section (4) of section 80IA of the Act reads as under :- “Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc. 80-IA. (1) ................. ................... (4) This section applies to— (i) any enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility which fulfils all the following conditions, namely :— (a) it is owned by a company registered in India or by a consortium of such companies or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act; 5 & 2589/PUN/2016 (b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility; (c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995: Provided that where an infrastructure facility is transferred on or after the 1st day of April, 1999 by an enterprise which developed such infrastructure facility (hereafter referred to in this section as the transferor enterprise) to another enterprise (hereafter in this section referred to as the transferee enterprise) for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central Government, State Government, local authority or statutory body, the provisions of this section shall apply to the transferee enterprise as if it were the enterprise to which this clause applies and the deduction from profits and gains would be available to such transferee enterprise for the unexpired period during which the transferor enterprise would have been entitled to the deduction, if the transfer had not taken place: Provided further that nothing contained in this section shall apply to any enterprise which starts the development or operation and maintenance of the infrastructure facility on or after the 1st day of April, 2017. Explanation.—For the purposes of this clause, "infrastructure facility" means— (a) a road including toll road, a bridge or a rail system; (b) a highway project including housing or other activities being an integral part of the highway project; (c) a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system; (d) a port, airport, inland waterway, inland port or navigational channel in the sea; (ii) any undertaking which has started or starts providing telecommunication services, whether basic or cellular, including radio paging, domestic satellite service, network of trunking, broadband network and internet services on or after the 1st day of April, 1995, but on or before the 31st day of March, 2005. Explanation.—For the purposes of this clause, "domestic satellite" means a satellite owned and operated by an Indian company for providing telecommunication service; 6 & 2589/PUN/2016 (iii) any undertaking which develops, develops and operates or maintains and operates an industrial park or special economic zone notified by the Central Government in accordance with the scheme framed and notified16 by that Government for the period beginning on the 1st day of April, 1997 and ending on the 31st day of March, 2006 : Provided that in a case where an undertaking develops an industrial park on or after the 1st day of April, 1999 or a special economic zone on or after the 1st day of April, 2001 and transfers the operation and maintenance of such industrial park or such special economic zone, as the case may be, to another undertaking (hereafter in this section referred to as the transferee undertaking), the deduction under sub- section (1) shall be allowed to such transferee undertaking for the remaining period in the ten consecutive assessment years as if the operation and maintenance were not so transferred to the transferee undertaking : Provided further that in the case of any undertaking which develops, develops and operates or maintains and operates an industrial park, the provisions of this clause shall have effect as if for the figures, letters and words "31st day of March, 2006", the figures, letters and words "31st day of March, 2011" had been substituted; (iv) an undertaking which,— (a) is set up in any part of India for the generation or generation and distribution of power if it begins to generate power at any time during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March, 2017; (b) starts transmission or distribution by laying a network of new transmission or distribution lines at any time during the period beginning on the 1st day of April, 1999 and ending on the 31st day of March, 2017: Provided that the deduction under this section to an undertaking under sub-clause (b) shall be allowed only in relation to the profits derived from laying of such network of new lines for transmission or distribution; (c) undertakes substantial renovation and modernisation of the existing network of transmission or distribution lines at any time during the period beginning on the 1st day of April, 2004 and ending on the 31st day of March, 2017. Explanation.—For the purposes of this sub-clause, "substantial renovation and modernisation" means an increase in the plant and machinery in the network of transmission or distribution lines by at least fifty per cent of the book value of such plant and machinery as on the 1st day of April, 2004; 7 & 2589/PUN/2016 (v) an undertaking owned by an Indian company and set up for reconstruction or revival of a power generating plant, if— (a) such Indian company is formed before the 30th day of November, 2005 with majority equity participation by public sector companies for the purposes of enforcing the security interest of the lenders to the company owning the power generating plant and such Indian company is notified before the 31st day of December, 2005 by the Central Government for the purposes of this clause; (b) such undertaking begins to generate or transmit or distribute power before the 31st day of March, 2011; (vi) [***]”
A perusal of the above provisions of the Act, it would show that the Parliament had employed the language that “any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4), such business being hereinafter referred to as the eligible business”. The expression “derive” had come for interpretation before the Hon’ble Supreme Court in the case of Pandian Chemicals Ltd. vs. CIT, 262 ITR 278 (SC) in the context of the provisions of section 80HH, wherein the Hon’ble Supreme Court held as follows : “It is clear that the words 'derived from' in section 80HH must be understood as something which has direct or immediate nexus with an 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. [Para 6] The appellant contended that having regard to the object with which section 80HH was introduced in the statute book, the Court should give a liberal interpretation to the words in a manner so as to allow such 8 & 2589/PUN/2016 object to be fulfilled. The rules of interpretation would come into play only if there is any doubt with regard to the express language used. Where the words are unequivocal, there is no scope for importing any rule of interpretation as submitted by the appellant. In the circumstances of the case, the decision of the High Court was affirmed and the appeal was to be dismissed. [Para 8].”
Again this expression has been interpreted in the context of provisions of section 80IA by the Hon’ble Supreme Court in the case of Liberty India vs. CIT, 317 ITR 218 (SC) wherein the Hon’ble Supreme Court held as follows :- “Scheme of sections 80-IA and 80-IB Analysing Chapter VI-A, one may find that sections 80-IB and 80-IA are the Codes by themselves as they contain both substantive as well as procedural provisions. It is evident that section 80-IB provides for allowing of deduction in respect of profits and gains derived from the eligible business. The words 'derived from' are narrower in connotation as compared to the words 'attributable to'. In other words, by using the expression 'derived from', the Parliament intended to cover sources not beyond the first degree. [Para 14] Further, sub-section (13) of section 80-IB provides for applicability of the provisions of sub-section (5) and sub-sections (7) to (12) of section 80-IA, so far as may be applicable to the eligible business under section 80-IB. Therefore, one needs to read sections 80-I, 80-IA and 80-IB as having a common scheme. On perusal of sub-section (5) of section 80-IA, it may be noticed that it provides for manner of computation of profits of an eligible business. Accordingly, such profits are to be computed as if such eligible business is the only source of income of the assessee. Therefore, the devices adopted to reduce or inflate the profits of eligible business have got to be rejected in view of the overriding provisions of sub-section (5) of section 80-IA, which are also required to be read into section 80-IB. Sections 80-I, 80-IA and 80-IB have a common scheme and if so read, it is clear that the said sections provide for incentives in the form of deduction(s) which are linked to profits and not to investments. On analysis of sections 80-IA and 80-IB it becomes clear that any industrial undertaking, which becomes eligible on satisfying sub-section (2), would be entitled to deduction under sub-section (1) only to the extent of profits derived from such industrial undertaking after specified date(s). Hence, apart 9 & 2589/PUN/2016 from eligibility, sub-section(1) purports to restrict the quantum of deduction to a specified percentage of profits. This is the importance of the words 'derived from industrial undertaking' as against words 'profits attributable to industrial undertaking'. [Para 15].”
Following this interpretation cited supra, it cannot be said that the income earned by the assessee in the form of all those items cannot be said to flow directly from undertaking itself. Therefore, the income so earned does not qualify for deduction u/s 80IA of the Act. Thus, we do not find any illegality in the order of the ld. CIT(A). Thus, this ground of appeal
no.1 stands dismissed.
13. Ground of appeal no.2 challenges the finding of the ld. CIT(A) confirming the disallowance u/s 14A of the Act. It is contended before us that in the absence of any exempt income no resort to the provisions of section 14A can be made. However, we find from the order of the ld. CIT(A) that only contention raised before the ld. CIT(A) was that the provisions of section 14A have no application in the case of strategic investments. We further find from the order of the Assessing Officer, it was asserted vide para 15(c) that during the year under consideration the appellant had not received any exempt income and therefore, no disallowance can be made. However, the Assessing Officer without dealing with this contention applied the provisions of section 14A of the Act. In the 10 ITA Nos.2588 & 2589/PUN/2016 circumstances, we are of the considered opinion that to meet the ends of justice matter requires remission to the Assessing Officer with direction that if it is found on verification that no exempt income was earned from the investments made no resort to provisions of section 14A can be made keeping in view of the decision cited supra. Accordingly, this ground of appeal no.2 is remitted to the file of Assessing Officer for de novo consideration on merits in accordance with law after affording reasonable opportunity of being heard to the assessee. Thus, this ground of appeal no.2 stands partly allowed for statistical purposes.
14. Ground of appeal no.3 does not arise out of the order of the ld. CIT(A) as the said ground of appeal no.3 was not pressed during the course of hearing before the ld. CIT(A). Hence, this ground of appeal no.3 dismissed as such.
15. The additional ground of appeal filed by the assessee seeks reduction from the book profits the amount of eligible profits u/s 80IB of the Act. This issue raised by way of additional ground of appeal is covered against the appellant by decision of the Co- ordinate Bench of the Tribunal in the case of M/s. Chheda Electricals and Electronics Pvt. Ltd. vs. DCIT (ITA No.400 & 11 & 2589/PUN/2016 668/PUN/2018 dated 04.05.2022) wherein the Tribunal held as under :- “17. In the case of Jaintia Alloys (P) Ltd. (supra), the assessee filed writ petition challenging the validity of the provisions of section 115JB of the Act on the ground that it did not provide for deduction u/s.80IB and the assessee had set up its unit in the eligible area for availing benefit u/s.80IB. Dismissing the writ petition, the Hon’ble High Court held that the curtailment of the benefit earlier granted by legislative Act cannot be invalidated on the principles of promissory estoppel. In other words, the benefit of section us.80IB which was available u/s.115JA but taken away by section 115JB, was declared as valid. In Sankhla Polymers (P) Ltd. (supra), the assessee claimed deduction u/s.80IB in the computation of income u/s.115JB, which was not allowed by the AO and the action of the AO was approved in the consecutive two appeals. The Hon’ble High Court, on a comparative reading of section 80IB as well as section 115JB, held that section 115JB is a special charging section and section 80-IB does not control the provisions of Section 115JB of the Act. It further laid down that: `The benefit under Section 80-IB is not denied, it works as it is. It is only because the assessee happens to be a company to which the provisions of Section 115JB is also attracted, levy as indicated therein becomes operative’. Similar view was earlier taken by the Hon’ble Uttarakhand High Court in Sidcul Industrial Association vs. State of Uttrakhand (2011) 331 ITR 491. These judgments make it palpable that deduction u/s.80B/80IC is not available in the computation of book- profit u/s.115JB of the Act.
18. In view of the foregoing discussion, it is clear that for the purpose of calculation of tax liability u/s.115JB of the Act, there is no scope for reducing book profit by the amount of deduction u/s.80IC. The Mumbai Tribunal in Neha Home Builders (supra) has held that deduction u/s.80IC is permissible in computing book profit u/s.115JB of the Act. Unfortunately, the above referred judgments of the Hon’ble Guwahati, Uttarakhand and Karnataka High Courts, which were prevailing on the date of hearing by the Mumbai Bench, were not brought to its notice.
19. At this stage it would be relevant to take note of another judgment of the Hon’ble Rajasthan High Court in Bishnu Krishna Shrestha vs. CIT (2019) 414 ITR 405 (Raj). The assessee in that case challenged the provisions of Section 115JB & 80IC of the Act on the ground that the benefit granted under Section 80IC could not have been withdrawn by introduction of section 115JB. Thus the dispute was on the non-granting of deduction u/s 80IC in the computation of tax liability u/s 115JB. Contention of the assessee that the denial of the deduction was ultra vires the Constitution of India came to be rejected.
12 & 2589/PUN/2016 Although the SLP on this issue has been admitted by the Hon’ble Supreme Court in S.B.L. (P.) Ltd. vs. CIT (2019) 263 Taxman 477 (SC), but that does neither make the ratio of the judgment otiose nor accord such admission a status of binding precedent under Article 141 of the Constitution. Ratio of the judgment in such cases continues to have full force under Article 227 of the Constitution until it is actually reversed and not on admission of the SLP.
In view of the fact that four consecutive High Courts have disentitled the assesses to reduce the amount of deduction u/s.80IB/80IC in the computation of book-profit u/s.115JB of the Act, and not even a single divergent judgment of any Hon’ble High Court has been brought to our notice, there is no scope for taking a contrary view. Ex consequenti, the Tribunal, which is an inferior authority, is incapacitated to lay down differently. Reverting to the language of section 115JB(5) making all other provisions of the Act applicable but by saving section 115JB and sub- section (1) of section 115JB containing a non obstante clause qua any other provision of the Act in the manner of computation of income tax liability of a company at 18.5% of its book profit and because of deeming provision in this sub-section regarding the computation of book profit and further Explanation 1 defining book profit in an exhaustive manner, we hold that there is no merit in the contention of the ld. AR in seeking reduction of the book profit u/s 115JB with the amount of deduction u/s 80IC of the Act. The additional ground, therefore, fails.”
Respectfully following the decision of Co-ordinate Bench of the Tribunal (supra), the additional ground raised
by the assessee stands dismissed.
17. In the result, the appeal filed by the assessee in ITA No.2588/PUN/2016 for assessment year 2012-13 stands partly allowed for statistical purposes.