IG3 INFRA PVT. LTD.,CHENNAI vs. ACIT (OSD) CORPORATE RANGE 2, CHENNAI

The assessee filed this appeal against the order of the Commissioner of Income Tax (Appeals)-6, Chennai in dated 27.12.2018 for the assessment year 2014-15.

M/s. IG3 Infra Pvt. Ltd., the assessee, is in the development of infra / SEZ projects. While making the assessment for the assessment year 2014-15, the Assessing Officer noticed that the assessee had included Rs.61,15,897/-, interest income in the turn over and computed deduction U/s.80IA of the Income Tax Act, 1961 (in short ‘the Act’). Since the revenue related to infrastructure facilities developed by the assessee only are to be considered for the purpose of deduction U/s.80IA of the Act, the Assessing Officer disallowed interest income of Rs.61,15,897/- from the claim made U/s.80IA of the Act. Aggrieved against that order, the assessee filed an appeal before the CIT(A). The Ld.CIT(A) dismissed the appeal. Aggrieved against that order, the assessee filed this appeal.

The Ld.AR submitted that the interest comprised Rs.23,91,303/- earned on the electricity deposit, Rs.21,115/- accrued on bank deposit with SBI and Rs.37,03,479/- accrued on SBI bank deposits with SME branch. He pleaded that the electricity deposit was a compulsory deposit insisted for its only “Chennai One” SEZ unit at Pallavaram, whose income is eligible for deduction U/s.80IA of the Act. Since, the property is eligible for deduction U/s.80IA of the Act, the interest on the electricity deposit of the property is also eligible for deduction U/s.80IA of the Act. The interest of Rs.37,03,479/- was earned from the bank deposits made with SBI, SME branch towards margin money for the loan availed. This also pertains to the infrastructure facility and therefore the Ld.AR pleaded that this interest should not have been considered for disallowance. He relied on the decision of the Bombay High Court in the case of M/s. Tema Exchangers Manufactures Pvt. Ltd., vs. ACIT in dated 18.07.2018. Inviting our attention to the Hon’ble Jurisdictional High Court decisions in the case of Arul Mariammal Textiles Ltd., vs. ACIT, Coimbatore, [2018] 97 taxmann.com 298 and Camiceria Apparels India (P.) Ltd., vs. ACIT, Company Circle I(3), Chennai, [2019] 103 taxmann.com 238 (Madras), the Ld.AR pleaded that the assessee’s appeal may be allowed.

Per contra, the Ld.DR taking us through the order of the Ld.CIT(A) submitted that the Ld.CIT(A) relying on various decisions of Hon’ble Supreme Court viz., CIT vs. K. Ravindranathan Nair [2007] 295 ITR 228 (SC), Liberty India vs. CIT [2008] 317 ITR 218 (SC) and the decision of the Hon’ble Jurisdictional High Court in CIT vs. Pandian Chemicals Ltd., [1998] 233 ITR 497 (Mad) held that the income earned from the activity of infrastructure facility alone is to be regarded as “derived from the business”. The immediate source of the interest income is the bank / electricity deposit and not the infrastructure business of the assessee. Therefore, the electricity deposits and margin money deposits are not derived from the assessee’s business of infrastructure facility. The Ld.DR invited our attention to the Jurisdictional High Court decision in Camiceria Apparels India (P) Ltd., and submitted that the decision is rendered U/s.10A, 10B wherein the High Court has clearly said, such provisions are attracted to the entire income derived from the “business of eligible undertaking” as contradistinguished from the provisions of Section 80IA falling under Chapter VIA, which provides for a deduction only in respect of the income ‘derived from/by the eligible undertakings’ and emphasized his plea. Further, with regard to the assessee’s plea on the allowance of interest income from SBI for the deduction claim U/s.80IA, the Ld.DR submitted that the assessee is having Rs.287,85,28,479/- as Reserves and Surplus. Further, the margin money deposited in the bank was towards Phase II project of “Chennai One IT SEZ”, at Thoraipakkam, as per sanction letter issued by the SBI dated 19.03.2014 and it is not in connection with “Chennai One” SEZ project at Pallavaram from which the impugned income is admitted and on which deduction U/s.80IA is claimed. Therefore, he supported the orders of the Ld.CIT(A) and Assessing Officer.

We heard the rival submissions and gone through the relevant material. During the year, admittedly, the assessee derived income only from the SEZ project at Pallavaram. Since the interest accrued on the electricity deposit is incidental to the SEZ, Pallavaram unit from which the assessee admitted income and claimed deduction U/s.80IA of the Act, the assessee's claim is allowable in accordance with ratio of the Jurisdictional High Court decision in the case of Arul Mariammal Textiles Ltd., supra. However, since the deposit with SBI is not connected with the project of SEZ zone at Pallavaram but it is connected with the Phase II project of Thoraipakkam unit, a work which is in progress and from which no income was admitted during the period, the interest earned from bank deposits of SBI and SME branch is not eligible for the deduction U/s.80IA of the Act. Therefore, the assessee’s claim is partly allowed.

In the result, the appeal filed by the assessee is partly allowed for statistical purposes.